Analysts say June election could help Brexit negotiations but also Tory domestic policies

Maryam Cockar Sharecast | 18 Apr, 2017 15:14 - Updated: 20:34 | | |

theresa may portada

Prime Minister Theresa May has called a snap general election on the 8 June, depending on her gathering two thirds of MPs approval in Parliament to repeal the Fixed Term Parliament Act.

She is expected to have the support of opposition parties when she puts a motion in the House of Commons to repeal the bill on Wednesday.

May had insisted that she would not call an early election and see out the term until 2020, but has sought to increase her majority as she heads into Brexit negotiations with the EU and to take advantage of a beleaguered Labour party.

Current polls put the Conservatives 20 points ahead of Labour, but she could face opposition from a resurgent Liberal Democrat party in Remain seats and the SNP in Scotland, who are also looking to hold a second independence referendum, and not to mention the political instability in Stormont with looming direct rule from Westminster for Northern Ireland.

Analysts at Danske Bank said the euro against the dollar traded lower on the election announcement and given that very short noncommercial sterling positioning, the euro versus the pound could decline further in the very near term driven by short covering caused by higher uncertainty.

“As such, a new test, and potentially a break of the post Brexit lows around 0.83 should not be ruled out. Short-term, the general election means there is one more uncertainty factor for the pound, as the sample space for UK-EU relations have suddenly widened again with notably a chance now that Brexit may be softened (or cancelled altogether should the May government be ousted).

“Given May’s lead in the polls the most likely outcome is that she will receive the more broad-based backing she is seeking heading into the negotiations on Brexit, due to start for real post the German election in the autumn. Our base case remains that May will stay in power and negotiate a ‘decent Brexit’ (neither too hard nor too soft), but the probability of other outcomes has clearly risen with today’s election call.”

While Martin Beck, lead UK economist at Oxford Economics, said that the Conservatives are on course to achieve a three-figure majority in the June election and the chief implication of this would be that “any possibility of the UK’s exit from the EU being impeded by Parliament will almost certainly disappear” and it “could also improve policy flexibility in areas such as taxation and pensions”.

“Domestically, a new mandate would give a Conservative government the means to dispense with the more questionable policies contained in the 2015 Tory manifesto, including the ‘tax lock’, which barred rises in income tax, NICs and VAT for the duration of the parliament, and the pensions ‘triple-lock’, the inter-generational effects of which are looking ever more unjust.

“A modification of the current (and implausible) pledge to reduce annual net migration to the “tens of thousands” may also be on the cards. So the likely outcome of June’s election could provide helpful fillips to both certainty about the UK’s direction of travel post-Brexit and flexibility in domestic policy-making.”

Strategists at Deutsche Bank said that they do not see the general election as a mandate for ‘hard’ Brexit.

An expected larger Conservative majority in the House of Commons would make “the deadline to deliver a ‘clean’ Brexit without a lengthy transitional arrangement by 2019 far less pressing given that no general election will be due the year after, and it could “dilute the influence of MPs pushing for hard Brexit, strengthening the government's domestic political position and allowing earlier compromise over key EU demands for a transitional arrangement”.

The bank also said that it would strengthen May’s overall negotiating stance, which in recent weeks has fallen in line with the European negotiating approach.

“This will involve a settlement of the Brexit payments and other divorce aspects first, to be followed by a lengthy transitional period during which the final outcome of Brexit will emerge. This sequenced approach materially reduces the ‘crash risk’ of Brexit negotiations as well as strengthening the Prime Minister's hand in pursuing an orderly (and very lengthy) withdrawal.”

They said that this will in turn reduce downside risks for the UK’s economic growth outlook during Brexit negotiations.

More news

23 Jun Capital Economics sees limited upside for FTSE 100 in 2017 (and next)

The UK economy's performance will continue to exceed forecasts but multiple headwinds will just about brake any further gains in the FTSE 100 in 2017, analysts at one of the City's top research shops said.

23 Jun US oil rig count keeps climbing, Baker Hughes says

The number of oil rigs in operation in the US continued to climb last week, increasing by 11 to 758, according to the results of the most widely-followed survey tracking them.

23 Jun FX round-up: Sterling gains on dollar thanks to UK policy hawks coming to fore

Sterling managed Friday gains on the US dollar thanks to UK monetary policy hawks coming to the fore in recent days, but was otherwise down against a raft of commodity currencies.

23 Jun Europe close: Stocks end off lows as oil futures perk up

Stocks came off their worst levels of the day as crude oil futures perked up and trading on Wall Street got off to a positive start.

23 Jun London close: FTSE labours through Friday as sterling gains on underwhelming dollar

Stocks in London laboured through Friday as sterling made gains against an underwhelming US dollar a day after PM Theresa May met with European leaders in Brussels.

23 Jun US open: Stocks edge higher at the end of the week

Gains for steel and biotech shares saw Wall Street edge higher amid better than expected economic data and some dovish Fedspeak.

23 Jun Price pressures grow in US in June, PMIs show

Private sector firms in the US continued to record a solid rate of expansion amid signs that economic growth might pick up again, the results of a widely-followed survey showed.

23 Jun US new home sales beat forecasts in May, prices jump

Activity in America's residential real estate market continued to hum along at a solid pace last month, the latest official revealed, amid sharp price increases.

23 Jun Avingtrans gets extension on possible Hayward Tyler bid

Hayward Tyler updated the market on its discussions with Avingtrans on Friday, regarding the possible offer by Avingtrans for the company as announced on 31 March.

23 Jun BMR raises £0.35m as Kabwe plant construction progresses

BMR Group announced on Friday that Peterhouse Corporate Finance had raised £0.35m - before expenses - by way of a placing of 9,333,333 new ordinary shares of 1p each in the capital of the company, at 3.75p per share.