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Quick takes on UK elections: Hung parliament seen undermining Brexit talks

Friday, June 9, 2017 - 15:43

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Britain Prime Minister Theresa May's decision to call a snap election resulted in a hung parliament, after she lost the Conservatives' majority in the House of Commons as Labour made significant gains.

BRITAIN Prime Minister Theresa May's decision to call a snap election resulted in a hung parliament, after she lost the Conservatives' majority in the House of Commons as Labour made significant gains.

Here are some views from experts:

Dominic Rossi, Global Chief Investment Officer, Fidelity International:

"This is the result markets feared. Markets were wrongly positioned, and international confidence in the UK will suffer. Sterling is the first casualty. With the election announcement, it rallied from the low 1.20s to the high 1.20s against the dollar. We can expect it to retrace these steps, with the overnight move lower to 1.27 an initial move.

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Market voices on:

"The uncertainty will put a lid on the UK equity market. The prospect of another election within next few months, coupled with the Brexit negotiations which are more unpredictable than before, raises the risks for all investors in UK equities."


David Zahn, Head of European Fixed Income, Franklin Templeton Fixed Income Group:

"We expect the pound to plummet and gilt yields to decline as investors embark on a so-called flight to safety. Overall, we think so-called risky assets, such as equities, are likely to underperform.

"The prospect of a hung parliament, resulting either in a minority government or a coalition, paints a picture of an administration not in complete control during a period in which the United Kingdom needs its most focused administration for 70 years.

"Worryingly for the UK authorities, this election result is likely to play into the hands of the EU's Brexit negotiators. They will see the UK doesn't have a strong leader to negotiate with and could be emboldened to take a tougher line."


Schroders:

"The fall in the pound has been smaller than expected given the hung parliament. At the margin, lower sterling will push up inflation a little further than previously forecast, which will have a small negative effect on household spending.

"The Bank of England (BoE) is unlikely to change its policy in the near-term but it will offer reassurance that it stands ready to act in the event of financial instability.

"Without a strong mandate, Europe can ignore the UK's demands. Even the UK's threat to pull out of negotiations will now appear hollow and lacking the support of the British public."


Rabobank:

"With a hung parliament, the Conservatives will be forced to form a coalition, possibly with the Democratic Unionist Party (DUP), which inherently will be less stable than a one party government. Meanwhile, there will be pressure on Prime Minister Theresa May to resign."


UOB:

"This is the fifth time Britain has had a hung parliament outcome, with the most recent one occurring in 2010 - when the Conservatives went on to form an alliance with the center-left Liberal Democrat party.

"This will leave all parties locked in negotiations to see whether any possible grouping can form a government in the coming days.

"A coalition this time round is less certain than in 2010. The Conservatives may be able to achieve a very slim majority with the support of the Democratic Unionist Party (DUP), but any government would be extremely weak.

"At least for the immediate near-term, until a coalition government is formed, political uncertainties alone would tilt GBP/USD [SPOT: 1.2760]to the downside. However, the downside on the currency may not be as pronounced what we originally thought. GBP/USD did not break fresh lows for the day and options pricing point to only a modest plus minus 100 pips range for the next week. From here, next support level beyond today's low of 1.2693 would be 1.2515, day-low for the day (18 April) Theresa May called for snap elections.[/SPOT: 1.2760]"

For more stories on the UK Elections, go to bt.sg/ukelect17

 
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