UK Snap Elections: May seeks to strengthen her Brexit hand - HSBC

The research team at HSBC explains that after the UK PM Theresa May announced her intention to hold an election on 8 June, the latest polls suggest the government’s wafer thin majority of 17 could increase substantially, potentially strengthening its hand at home and in the Brexit negotiations.

Key Quotes

An Easter Surprise 

As the UK was quietly returning to work after a long Easter weekend, Prime Minister Theresa May surprised everyone by announcing her intention to call an early election – the UK’s fourth important vote in four years – for 8 June. While she has said on a number of occasions that there would be no election until 2020, she argued today that the divisions in parliament were hampering the government’s Brexit agenda. 

In line with the Fixed Term Parliaments Act, this election will have to be approved by a two-thirds majority in a vote tomorrow (19 April). Labour Leader Jeremy Corbyn has already said that his party will vote in favour– suggesting it will go through.” 

Polls suggest happy days for Mrs May

According to latest polls, the Conservative party would win 44% of the vote (up from 37% in the 2015 election) while Labour’s share would drop from 30% to 23%. According to Electoral Calculus, this could potentially mean the government increases its current majority of 17 by a multiple of six, to 112. 

The polls have been wrong before, of course. If the voters treat this election as a second Brexit referendum, then the Lib Dems might do better than the polls and the Electoral Calculus analysis suggest. However, the current polls do not suggest they would stop the Tories from increasing their majority substantially.”    

Sterling reacting positively for now… 

Against this backdrop, sterling has reacted positively in the first instance to this news. However, our FX team is not convinced: we see this sudden announcement as just another symptom of the uncertainty in UK politics at the moment – and not a particular reason to buy or sell the currency. Indeed, it is not clear what this means for the Brexit negotiations. On the one hand, as our FX team points out, a diminished opposition might allow the government a freer rein to push through its agenda, which could mean hard Brexit or even no deal Brexit. On the other hand, if a new intake of Conservative MPs were more centrist in their expectations of Brexit, then the voice of the ‘hard Brexit’ backbenchers would also be diminished.”

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