After seven weeks of campaigning and two electioneering suspensions, due to the tragic Manchester and London terror attacks, the jury – in the form of the electorate – has delivered its verdict.
After a tense night, the Conservative Party has emerged as the largest party, however they have failed to reach the magic 326 seat mark which would give them a majority. Theresa May’s gamble has not paid off, this general election has failed to deliver the decisive outcome she had hoped for when she called the snap election on 18 April. Without a working majority, we’ve got a hung parliament.
Later, on Friday, it was announced that Theresa May would visit Buckingham Palace to seek permission to form a UK government. It is understood that she is hoping that the Democratic Unionist Party will support her minority administration.
While markets would have preferred a comfortable Conservative majority, there is a school of thought that a hung parliament may lead to a softer outcome in the Brexit talks. Negotiations with the European Union will be made much more complicated by this result, with the possibility that another election may even be necessary. One thing that is certain is that the cause of Scottish independence has been dealt a significant blow by the Scottish National Party’s substantial losses.
So far, markets have reacted fairly calmly, with Sterling down about 2%, and the FTSE 100 in positive territory boosted by the impact of the weaker currency on companies with large overseas earnings. Stocks with a domestic focus are weaker though, with the FTSE 250 down modestly. Gilt yields have risen modestly, partly on predictions of a softer Brexit but also due to higher inflation expectations.
Whoever is Prime Minister, whether Mrs May or someone else, faces a number of challenges, including how to negotiate Brexit against the backdrop of a hung parliament, while the economy is beginning to weaken amid the ongoing uncertainty and the squeeze on real incomes.
Our positioning and outlook remains unchanged. Overall, we retain a generally positive view, given the backdrop of solid global growth, with a preference for overseas equities over UK equities, and underweight gilts. We have a sizeable exposure to overseas earners on the FTSE 100, and a meaningful position in gold, in part due to geopolitical uncertainty. We are also positioned for other important global themes, such as the continuing growth of the US and Eurozone economies. Sterling has fallen modestly on the back of the result, but we are keeping our exposure under review. We expect it to remain at a historically low level, due to the increased uncertainty, and the likelihood that the Bank of England will keep interest rates low for now. We would like to reassure clients that we continue to monitor developments very closely. Diversification by assetclass and geography remains central to our strategy, and it goes without saying that we will continue to manage portfolios in the best interests of our clients at all times.
Quotes
“The fact is this election… it’s going to be judged as possibly the most catastrophic mistake, strategic call that a political leader has made.” Alastair Campbell
“We’re going to be in a very, very unstable hung parliament, if this is correct, there will be a second election soon.” Ed Balls
“If there is a message from tonight’s results it is this. The Prime Minister called this election because she wanted a mandate. Well the mandate she has got is lost Conservative seats, lost votes, lost support and lost confidence.” Jeremy Corbyn
“We’ve got some reflection to do.” Nicola Sturgeon
“We have a situation now where, hopefully, maybe, politicians may learn that calling referendums and general elections to suit your party rather than suiting the country is something to be avoided.” Tim Farron
“It’s obviously been…a catastrophic night for her and very bad for the Conservatives.” George Osborne
“Whatever the results are, the Conservative party will ensure that we fulfil our duty in ensuring that stability, so that we can all, as one country go forward together.” Theresa May
“I, of course, have encountered this evening something that many people have encountered before tonight, and I suspect many people will encounter after tonight, which is in politics you live by the sword and you die by the sword.” Nick Clegg
