Everyone has been caught off guard by the surprise hung election. As the pound falls sharply and Theresa May asks the Queen for permission to form a minority government, how will this affect businesses?
Although the Conservatives obtained the most votes, they do not have the majority needed to push through policy change. Stringent financial cuts will be harder to implement unless backed by other parties, so now seem less likely.
In the short-term, there will inevitably be a period of instability although hopefully this can be recovered by the Conservatives forming a coalition with the Democratic Unionist Party in Northern Ireland.
The election result will have shaken the Prime Minister’s plans for strong support during Brexit negotiations, due to start on 19th June. Many pundits doubt that a ‘hard Brexit’ will now be possible. Negotiations may take longer and prove more challenging with a weaker government in charge.
Brussels has indicated flexibility on the start of talks, so perhaps the government will have time to gather support? However, the date the UK is due to leave the EU (29th March 2019) cannot be postponed, which means the government will still need to move quickly if they wish to garner the best deals from negotiations.
The pound dropped overnight and as trading started in London it fell a further 2% to about $1.27, or against the Euro the pound was down 1.7% at 1.1350. While this boosted the FTSE 100, shares in UK companies were weakened.
It should be noted that sterling did not suffer quite as badly as following the Brexit referendum so there is hope of a swift recovery.
Businesses should expect instability and uncertainty for now as the government scrabbles to regain their strength. The CBI emphasised the dangers of a hung government. “This is a serious moment for the UK economy. 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,” said Carolyn Fairbairn, director general of the CBI.
“For the next Government, the need and opportunity to deliver an open, competitive and fair post-Brexit economy that works for everyone across all our nations and regions has never been more important.”
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