The results of the UK general election on June 8th have left many factors in a state of uncertainty in Britain. The country has been left with a hung parliament, with the Conservatives only securing 318 seats of the 326 they needed to win a majority. This political result has had effects, both positive and negative, on areas of the economy and investment markets.
Previous trends have shown that, when there is anticipated disturbance in the political sector, investments in commodities such as gold increase as people try to hedge their bets against economic losses. In the run up to the election, there was increase of 64% in people investing in gold for the first time, while numbers of financial professionals buying physical gold were up 49% in the week leading up to the vote.
Following the announcement of a narrow Conservative win the sterling experienced a sudden drop of 2% in value against the dollar to $1.2683, its lowest level in two months though it regained a little ground back up to $1.27 on Friday the 9th. It is predicted that sterling will continue to experience some level of volatility in the short term.
While the election results have hit some areas of the economy negatively, others are thriving after the news. The FTSE 100 ended on the 8th of June up 1%, while the Stoxx Europe 600 experienced an increase of 0.3%. Global businesses, such as Diageo, Reckitt Benkiser, and Unilever also observed upward movement, all trading at around 1.5% higher by the 9th. Increased value of shares of exporting companies, which make up three quarters of the FTSE 100, are expected to do better as the weakened currency is likely to rise income earned abroad.
The narrowness of the Conservative win will have an impact on how the upcoming Brexit negotiations are carried out as well. Theresa May gambled the Conservative status as the ruling party in the hope of gaining an even stronger position in the negotiations however, this has backfired with no party having an overall majority in the UK parliament. The weakened Conservative position means that a more lenient Brexit deal may be agreed on as opposed to the “hard” Brexit that May hoped for, with no trade deal.
As the Conservative party enters into discussions with the Democratic Unionist Party (DUP) about a possible coalition, economic uncertainty may continue. This coalition would see the DUP adding their 10 parliamentary seats to the Conservative seats, giving the party the majority it needs to pass legislation, and gain a stronger hold over the Brexit negotiations.