Surprise UK election ‘set to boost economic stability’

Prime Minister Theresa May caught the political world by surprise on Tuesday when she called a snap general election in the UK on 8 June.

Mrs May, who had previously ruled out an election until its scheduled date in the spring of 2020, said she had “recently and reluctantly” changed her mind because of opposition in parliament to her tough stance towards Brexit negotiations.“The country is coming together but Westminster is not,” she said, adding that Britain needed certainty, stability and strong leadership following last June’s EU referendum.The House of Commons will vote on Wednesday on a motion authorising the election. Labour leader Jeremy Corbyn said his party would support the motion.

Derailing Brexit

Mrs May accused other parties of indulging in “game playing” that could derail Brexit negotiations. She said, “I have concluded the only way to guarantee certainty and security for years ahead is to hold this election.“I have only recently and reluctantly come to this conclusion. Since I became prime minister, I’ve said there should be no election until 2020, but now I have concluded that the only way to guarantee certainty and security for the years ahead is to hold this election and seek your support for the decisions we must take.”Mrs May accused the Labour Party of threatening to vote against the final Brexit agreement; said the Liberal Democrats wanted to “grind the business of government to a standstill”; attacked the SNP for saying they would vote against the legislation that formally repeals Britain’s membership of the EU; and lambasted “unelected” members of the House of Lords for plotting “to fight us every step of the way”.She added, “The decision facing the country will be all about leadership. It will be a choice between strong and stable leadership in the national interest, with me as your prime minister, or weak and unstable coalition government, led by Jeremy Corbyn, propped up by the Liberal Democrats – who want to reopen the divisions of the referendum – and Nicola Sturgeon and the SNP.”

Boost for the economy?

The think-tank, the Centre for Economics and Business Research (Cebr), said victory for Mrs May’s Conservatives in the election could bolster economic and political stability, encouraging firms to invest and supporting economic growth.But, with opinion polls currently showing a double-digit Conservative lead, Cebr warned that potential gains from having a Tory government with a large majority could be undermined if the party’s moderate stance on immigration gives way to more stringent controls.Scott Corfe, director of Cebr, said, “On the upside, an increased Tory majority, which would almost certainly be the result of an election, will increase economic and policy stability and reduce the current sense of business uncertainty. Increased certainty should feed through into higher levels of business investment, supporting growth in the short term.“This is especially the case with respect to Brexit uncertainty, where Theresa May would have to lay out a more articulated vision to the electorate in the run-up to the election.“A colossal defeat for Labour, with the ousting of Jeremy Corbyn, would also allow a credible opposition party to emerge from the ashes and end the effective one-party state that the UK has become.“There are some economic downsides to an early general election and a bigger Tory majority. While the government increasingly seems to be taking a more moderate (and economically sensible) stance on issues such as immigration, reflecting the realpolitik and need for pragmatism post-Brexit, this could unravel.“Hardliners within the Conservatives could give Theresa May a difficult time over any softening in stance towards Europe.“And she could be pushed into taking a hard-line stance by the media during the election campaign – expect her to be repeatedly challenged on how and to what extent the Tories will reduce immigration.”
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Improving UK productivity

Carolyn Fairbairn, director-general of the Confederation of British Industry (CBI), said businesses would be looking to each political party to set out their plans to support economic stability and prosperity in a way that was fair and sustainable for communities across the UK.“Distraction from the urgent priorities of seeking the best EU deal and improving UK productivity must be kept to a minimum,” she said. “Firms will want to hear commitments from all parties to work in close partnership with business and back a new industrial strategy to make the UK economy the most competitive in the world by 2030. “It is essential to get the UK’s foundations right, from building a skills base for the next generation, to investing in infrastructure, energy and delivering a pro-enterprise tax environment.“As EU negotiations now get underway, firms are clear about the serious risks of failing to secure a deal and falling into World Trade Organization rules. It is vital that negotiators secure some early wins and all parties should commit to working to ensure businesses can continue to trade easily with our EU neighbours, while seeking new opportunities around the world.“Whoever forms the next government, they should seek to build a partnership between business and government that is the best in the world, based on trust and shared interest.”The pound gained ground against both the dollar and euro on the announcement of the general election, although shares fell in London.

Negotiating "choppy waters"

Peter Ashton, managing director of Eiger FX, commented, “The political curveball delivered by the prime minister that a general election will be held on 8 June provided an immediate boost to the pound. The markets were quick to price in greater economic and policy stability under what they expect will be a significant majority, given the weakness of the opposition.“There is still huge uncertainty surrounding the implementation of Brexit but a strong majority party will help to provide a degree of stability while we negotiate the choppy waters ahead. After last week’s strong jobs data, this is yet another positive development for sterling.”Luke Bartholomew, of the investment firm Aberdeen Asset Management, added, “The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers that currently hold a disproportionate sway over her party’s stance on Brexit. That would be welcomed by financial markets.”Neil Wilson, of the spread betting firm ETX Capital, said, “For investors, it adds another layer of complexity to an already uncertain picture for UK and European assets. Volatility is likely to remain elevated over the coming weeks.“And as elections are so unpredictable, there is always the outside risk it could spark a reversal in the entire Brexit process.”For related news and features, visit our Brexit section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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