2017 UK Election: the reaction

9 June 2017

Mark Rushton, Chief Investment Officer

With an Election result that was feared, but unexpected, in terms of political stability, the Tories will now need to rely on the Democratic Unionist Party in order to form a government. Tories are predicted to achieve 318 seats with the Democratic Unionist Party holding 10, providing an alliance with enough seats to govern.

In calling the election, Theresa May made her play for a strengthened mandate for Brexit. Her gamble has failed to such an extent that there have been and will be calls for her to resign; if not immediately, then after she attempts to form a government. 

Historically, the Tories have been brutal and speedy in dealing with their own when necessary, but the key in the immediate future is to form a government; and May, who has categorically said she will not resign, has the ability and responsibility to do so. However, her medium term prospects are weakened.

Markets will lack clear direction as they ‘wait & see’. GBP has weakened as expected (USD 1.2670 this morning), bonds are firm, and FTSE 100 has opened a tad stronger (up c. 75 at 7,523 this morning) with overseas earners firm on the back of weaker GBP. Property stocks opened down c.7%, and housebuilders are lower by up to 9%. Property will continue to be challenged in the near term. Inflation is expected to rise, and bonds may weaken as growth comes under pressure leading to increased government borrowing.

Brexit now looks as though it will be ‘softer’. Negotiations are due to start shortly and kick-off may need to be postponed. Markets and overseas participants will view this as positive. However, if the Tories and Democratic Unionist Party form an alliance, the DUP will obviously push for their own terms for Brexit and other DUP manifesto pledges (eg keeping Triple Lock). All will become clearer in the coming days. 

Otherwise, as ever, we are here to provide a considered and calm approach to investment on our clients’ behalves and to keep them informed.