After years of Brexit stalemate, months of battling to agree to an election and weeks of campaigning, the day finally arrive when the UK went to the polls for the 3rd general election in 4 years. The polls in the lead up to the election pointed to a large Tory majority which was whittled away during the campaign however give the track record these in the Brexit vote, the last general election and the US presidential election, little faith was placed in these predictions. Then came the exit poll and it felt almost a disappointment, perhaps the polls were right this time?
A Conservative government was returned and with a majority that no one believed possible. Sterling made large gains on the news and markets moved higher during the day. This is less a comment on sentiment towards Brexit and more relief that we did not return a hung parliament or a very left-leaning Labour government. A Tory majority is the outcome which provides the greatest certainty going forward which is the reason for the market response.
We will have to wait and see whether this now unleashes the pent-up investment and corporate spending which was much talked about and if that does come to pass whether this offsets any negative impact of finally leaving the EU. Whilst Johnson will be keen to pass his withdrawal bill with his new majority, it is of course only the beginning of our departure. The real negotiations begin around how our future trading relationship will function which even with a stable majority at home will be anything but uneventful.
One silver-lining, in purely economic terms, is that with this comfortable majority Boris may be inclined to soften his talk of a hard Brexit and look to reach out to the remain side and seek to negotiate a softer Brexit which will be less disruptive for future trade.
That move to the centre ground seems even more important for the Labour party. After leading the party to three straight electoral defeats Jeremy Corbyn has said he will not stand as leader in the next one. Whilst Brexit clearly dominated the election this time around, many were cautious about their economic plans. Assuming this parliament lasts its full term, perhaps we will see a less radical Labour party at the polls next time, which given that the country would have had nearly 15 years of Conservative rule in which austerity was pushed through and a potential exit from the EU, it will surely be Labour’s to lose next time.
So what does this all mean for our clients? The continuation of Tory rule should mean that tax rates and rules remain broadly where they are and one should not fear a government grab for your wealth. As stated above, markets have reacted positively to this outcome but that is more on relief than strong endorsement of the regime. A negative financial outcome has been avoided but we are not out of the woods yet. A lot of spending has been promised and given that growth continues to soften, government revenue will need to be found somehow. Therefore continuing to tax plan carefully remains a top priority. Also important is the need to diversify. As we negotiate our exit the UK market is likely to remain volatile. Elsewhere in the world there are a number of trends and potential events which will cause unease in global markets and demonstrated time and again, the unexpected always occurs, even when you were told it would happen as in the case of this election!