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Houses of Parliament

UK general election

09 June 2017

Theresa May’s gamble backfires as voters again show their disillusionment with the political establishment.

Last night’s election result constitutes the latest in a series of electoral surprises that began with the Brexit vote, and continued with the presidential elections in the US and then in France. On this occasion, pollsters’ early predictions were confounded, although the initial exit poll did this time provide a better guide to the eventual result. It is now clear that the election has delivered a hung parliament. In the short term at least, we can expect a period of political uncertainty. As the largest party, it is for the Conservatives to attempt to form a government and look to lead the Brexit negotiations.

However, as we have seen both in the US and in France, a surprise result alone does not necessarily lead to instability in the markets or indeed in the value of the currency. And, of course, the UK has been here before – there was a hung parliament in 2010.

Following a fall in sterling to around $1.27, the UK equity market is up in early trading. On a broader level, we do not expect any new government to radically alter economic policy in the immediate term, as its attention turns to EU negotiations.

However, a lot can happen in politics in the short term, as the next few days may yet reveal. For now though, the priority for investors is to maintain their focus on the longer term. We saw after the Brexit vote that the short-term market movements that follow political surprises are often reversed as quickly as they arise. Trying to second guess these changes is risky and can prove expensive. The prospect of the start of EU exit negotiations provides all parties with a reason to ensure that a government is formed as soon as possible.

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