The political ramifications of the hung parliament result throws up so many intriguing issues for the UK. Was this an election of the population just giving Theresa May a bloody nose or is it down to a significant surge in the popularity of socialist politics? It is difficult to ascertain that quite so soon (probably a combination of the two), however let’s just take a brief look at other questions that are thrown up. Here are a few thoughts on the result of the UK General Election.
- Theresa May is battered and bruised from the result but seems ready to continue. But will the Conservatives allow this “Lame Duck” Prime Minister to continue? As much as anyone else, Tory leaders are judged on their ability to win elections. It is difficult for Mrs May to argue that this is anything other than a calamitous loss. The Conservatives can mathematically continue with the support of the Democratic Unionist Party (the DUP, from Northern Ireland). This “coalition” (of whatever form it is billed) will be extremely fragile and at the behest of the backbench Tory MPs. How long will it last for and what can Theresa May seriously get through Parliament. “Her” manifesto will effectively be torn to shreds.
- Can Labour form a minority government of a progressive alliance? This seems unlikely and in any event the Conservatives would need to fail before that happens (so quite a possibility then). The numbers do not seem to add up to any sort of stability in this scenario though.
- Could there be yet another election then? This is perfectly possible as the stability of any government would be seriously questionable.
- This is a momentous election for both main parties and sets Labour on a solid path towards hard left policies for the foreseeable future. The Labour moderates will have been significantly burnt by this and will now have to fill in behind the socialist dogma that their party leaders convey.
- Does the poor performance of the Scottish Nationalists put to bed a second Scottish Referendum? The SNP lost 21 seats just a few months after the threat of another independence referendum. Surely this result is Scotland rejecting IndyRef2.
- What does this mean for Brexit? Will it now be a hard or soft Brexit? How will the Tory Brexiteers respond to Mrs May’s negotiations with Brussels. This will mean that she will now have to look over one shoulder at the rest of the House of Commons, but then also over the other shoulder at the Tory backbenchers. An incredibly difficult position to be in, perhaps even untenable.
- Finally it is tough to get away from the direction of travel in this election. In politics, the direction of travel can be crucial. The Tories on the wane, whilst Labour resurgent. Unless the Conservatives can now learn their lessons from an awful manifesto and a negative campaign, they will be in serious danger in the next election, whenever it may be.
And the impact on Sterling?
GBP/USD has stabilised following the initial sharp losses of with a low at $1.2632 now unwinding. The potential enormous downside is yet to materialise, however there is plenty of time for the uncertainty of a hung parliament to weaken sterling. The old key floor around $1.2775 will be seen as an area of overhead supply now and could begin to limit this intraday rebound. Cable was around $1.2600 when Theresa May called the election and a retreat back towards here could easily be seen. It is also interesting to see that EUR/GBP saw the spike rally fail around the resistance at £0.8850.
However the impact on Brexit will be a key factor and the hung parliament could now mean that Brexit is likely to be softer. In these least, it will make the negotiations more public, with Parliamentary scrutiny more likely. Could this mean that sterling is supported? Much uncertainty means increased sterling volatility in the coming months though.