UK: Minority government is weak from the beginning

Danske Research Team Danske Bank A/S

Theresa May stays for now but is clearly weakened

Final result. Conservative 317 seats, Labour 262 seats, Scottish National Party 35 seats, Liberal Democrats 12 seats, Democratic Unionist Party 10, Sinn Fein 7, Others 7.

While, as expected, PM Theresa May is forming a minority government supported by the Democratic Unionist Party (DUP), the bigger question is whether she is a ‘dead woman walking', as previous Chancellor of the Exchequer George Osborne put it. PM Theresa May called for a snap election in order to consolidate power within the Conservative Party and House of Commons, as she was greatly ahead in opinion polls at that time. As it failed, Theresa May's position is clearly weakened and she had to let her two Chiefs of Staff (Nick Timothy and Fiona Hill) go. Gavin Barwell (moderate Conservative) has been appointed new Chief of Staff. The Telegraph writes that almost two-thirds of Conservative Party members want Theresa May to resign.

Still, it is not easy for the Conservatives to get rid of Theresa May now, as the Brexit negotiations are set to start soon and a leadership contest will only increase uncertainty. Note a leadership can be triggered in two ways: (1) If 15% of Conservative MPs lose confidence with the leader and (2) the leader resigns, see details here (pdf file).

Boris Johnson, seen by many as a candidate for succeeding Theresa May, has urged Conservatives to back Theresa May (reasons: (1) she won the most Conservative votes since Margaret Thatcher, (2) the government must focus on Brexit, (3) the people do not want a new election).

A likely scenario is that Theresa May stays for now but is replaced at a later point in time. Theresa May refused to answer yes when asked if she will stay a full term.

Minority government is weak from the beginning

Regarding the corporation between the Conservatives and DUP, we got some different messages over the weekend, not least since Downing Street's No 10 issued a statement saying a ‘confidence and supply' deal was reached, which the DUP later rejected. Downing Street later said the statement was issued in error. The conclusion is that negotiations between Theresa May and the DUP are not concluded and are set to continue this week. Notice that the Conservatives have rejected a more formal agreement due to the DUP's views on same sex marriage, death penalty and abortion.

The Queen's speech, a speech held by the Queen, written by the government and which sets out the government's agenda for the coming year, is due to take place on 19 June.

Irish Prime Minister Enda Kenny wrote on Twitter that he has told PM Theresa May he is concerned about her relying on support from the DUP, as it may put the Good Friday agreement at risk.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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