Standish Mellon Asset Management
June 12, 2017
Specialist multi-asset investment management firm

After UK Election, a More Vexing Brexit

The Conservative Party’s surprise loss of its parliamentary majority in the June 8 British election may add confusion and delay to negotiations with the European Union over Britain’s departure from the EU. However, we still expect that Britain will be able to reach a trade agreement with the EU as part of its departure from the union.

Conservative Prime Minister Theresa May had called for the elections in hopes of increasing her party’s strength in Parliament prior to the start of negotiations over Brexit. Instead, they lost 12 seats and May now must seek to form a minority Conservative government, aided by an agreement with the Democratic Unionist Party of Northern Ireland. Because the seven Sinn Fein MPs from Northern Ireland do not take their seats in Parliament, May will have a working majority.

The top agenda item for the new government will be Brexit. The first summit with the EU since Britain began the formal process of leaving the union is scheduled for June 19, the same day as the opening of Parliament. Despite the Conservatives forming a minority government, our base case remains that they can reach a trade agreement with the EU. However, May’s relatively weaker power within the Conservative party means that the tail risks to an agreement—including the potential that the UK could leave the EU without a deal on future relations—have increased in probability.

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