LONDON – The political chaos resulting from the General Election adds a “new level of uncertainty” and raises the likelihood of a softer Brexit approach in negotiations that start in less than two weeks, an analyst at Nomura said.
“These election results call the Brexit result into question – at the least, this could be seen as a rejection of Mrs May’s hard stance on the upcoming negotiations,” Bilal Hafeez, a European rates analyst at Nomura wrote in a note to clients on Friday.
“Whatever the case, her party’s position in parliament will be a roadblock to getting her own way on what is set to be the most defining event in many years,” he said.
Prime Minister Theresa May will refuse to stand down as Conservative party leader after failing to win a majority in the general election, according to multiple reports.
The Conservatives lost their majority in parliament after voters rejected her call for a bigger mandate in order to “strengthen her hand” in Brexit negotiations.
The result “is likely to lead the market to question the possibility of a softer Brexit,” Hafeez said. So far market reaction to the election result has been muted, with the fall in the Pound helping to buoy stocks.
But, without knowing for certain how May’s cabinet will look when talks start, there is no guarantee that the UK will push for single market access. “When Brexit negotiations start in just 11 days, who will be sitting on the UK side of the table? Until that is clear, it will be hard to say anything concrete, but this adds a whole new level of uncertainty to the Brexit negotiations,” said Hafeez.
Whichever way the negotiations go, the overall uncertainty is bad for investors, businesses and consumers. “Greater uncertainty could herald weaker investment, while the impact from a lower sterling could mean weaker consumption,” Hafeez said.