UK: Best opportunity for government to rectify its slim majority - Natixis

René Defossez, Research Analyst at Natixis, explains that Theresa May’s government will hold an election on 8th June after previously saying that it had had no intention to do so, and Natixis believes this has come about as it presents the best opportunity for the government to rectify its slim majority given historically weak Labour party and decent economic figures of late.

Key Quotes

“One poll conducted in March by electoral calculus forecasts the Conservative Party heading toward 381 seats which would give May’s government a commanding majority (112) in the Commons and with it much greater legitimacy to pursue Brexit on her terms. The danger of a resurgence of the Liberal Democrat vote as the flagship ‘remain’ party is material especially given their performance in the Richmond by-election after the incumbent Conservative MP stood down (the Liberal Democrats won due to a 20% swing). The probability of tactical voting in what amounts to an anti-Brexit alliance between the SNP, Labour and the Liberal Democrats is not likely to occur given the radically different ideological positions between these parties.”  

“Since the Brexit vote there have been rumours of various financial institutions leaving the UK if passporting rights could not be ensured. We now know that this will happen and firms are planning accordingly. For example, there are now a number of investment banks that have concrete plans to relocate part of their UK headcount to offices on continental Europe such as UBS who will move 1,500 staff to offices in Madrid and Frankfurt.”

“Another story highlights potential relocations could occur sooner than later. This is because of a letter sent by the UK’s Prudential Regulation Authority (PRA) last week which asks all companies with UK-EU trade links to send their contingency plans to the regulator. Some have perceived the PRA letter move as hurrying firms to act quicker in relocating than they would have.”

“A recurrent theme in the argument over which firms and agencies would be repatriated to the continent has been the status of the European Banking Authority and the European Medical Agency. The Brexit secretary, David Davis has stated there is no need for these two institutions to leave the United Kingdom; however, this view is not shared across the channel. Much like the question over derivatives clearing, there is a clear consensus among EU members that both agencies should return to the continent after Brexit. Indeed, EC President Tusk will soon set a guideline that will help decide which city that will take over as the new host of the agencies.”