UK hung parliament leaves investors hanging

The Conservative party failed to secure a majority of seats in snap general elections on June 8, sinking sterling and casting a new shadow of uncertainty over the imminent Brexit negotiations.

“While companies have for many months done their best to screen out political noise in order to focus on their own operations, this result will prove much harder for UK businesses to ignore,” Adam Marshall, director general of the British Chamber of Commerce (BCC), wrote via the BCC’s Twitter account.

With only one seat left to officially assign (the traditionally Tory constituency of Kensington & Chelsea), the Conservative party is forecast end up with 319 seats, seven shy of the 326 that represent a majority in the House of Common, with the Labour party on 261 seats. Both parties saw their total votes sharply increase from the 2015 elections to, respectively, 44% and 40% of total votes, as they exploited the demise of the UK Independence Party (Ukip), which failed to secure more than 2% of total votes, from 11.2% in 2015, and did not win any seat in the Commons.

The Scottish National Party (SNP) secured 35 seats, the Liberal Democrats won 12, the Northern Ireland’s Democratic Unionist Party (DUP) took 10 and the Green party retained their single seat.  

The UK pound sharply fell in the currency market right after the first exit polls – showing the risk of a hung parliament – were published once polling stations closed on June 8. It stabilised at around 1.273 against the US dollar in London morning trading, from 1.295 a day earlier, with investors seemingly waiting for Conservative leader Theresa May to make a first move in the direction of forming a government. The FTSE 100 was gaining 0.72% in London morning trading, and the Eurostoxx 50 was up by 0.26%. 

“The swift formation of a functioning government is essential to business confidence and our wider economic prospects,” the BCC’s Mr Marshall said, while another influential lobby group, the Confederation of British Industry (CBI) also emphasised the need to a clear political direction.

“The priority must be for politicians to get their house in order and form a functioning government, reassure the markets and protect our resilient economy,” Carolyn Fairbairn, CBI director-general, said on the CBI’s website. “It’s time to put the economy back to the top of the agenda.”

Despite failing to secure a majority support for the “strong and stable leadership” she repeatedly promised to deliver throughout the campaign, Ms May has struck a deal with the DUP and will seek permission from the Queen to form a DUP-backed government.  

“At this time more than anything else, this country needs a period of stability,” Ms May said from her constituency in the early hours of June 9, when the likelihood of a possible hung parliament began to emerge. “And if, as the indications have shown and if this is correct that the Conservative party has won the most seats and probably the most votes, then it will be incumbent on us to ensure we have that period of stability – and that is exactly what we will do.’

On the other hand, the leader of the Labour party Jeremy Corbyn called for Ms May to resign, and shadow chancellor John McDonnell said Labour was ready to form a government: “We've always said, whatever the circumstances, we’re ready to serve the country and we’re ready to form a government. In our position that would be a minority government.”

With the political environment at Westminster as uncertain as ever, it is yet to be seen who will be at the table in Brussels on June 19, when official Brexit talks with the European Union are slated to kick off. Brexit talks “will have to go ahead”, Labour leader Jeremy Corbyn said, calling for a job-first agreement with the EU.

Waiting for a government to emerge, Donald Tusk, president of the European Council, weighed in through his Twitter account. “We don’t know when Brexit talks start,” he wrote. “We know when they must end. Do your best to avoid a ‘no deal’ as result of ‘no negotiations’.”