Sobre las elecciones anticipadas en Reino Unido (AXA IM)

David Page, economista senior de AXA IM - Miercoles, 19 de Abril

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Key points ·  PM May announces intention to hold a general election on 8 June, subject to Parliamentary vote tomorrow. Labour opposition leader Corbyn agrees to election. · Polls suggest likelihood that Conservatives increase their majority at the expense of Labour. This would secure government ability to deliver its vision of Brexit and reduce leverage of Tory back-benchers on other domestic issues.

·        Election is not riskless for Tories. PM May gambles that UK vote will be on who can negotiate the better exit, not a re-visit of the Brexit vote (although this will remain a risk).

·        Financial markets post mixed-reaction, but sterling rises to mid-December highs on prospect.

“Prime Minister May announced that she will present Parliament with a vote tomorrow on whether to hold early elections on 8 June. The Fixed Term Parliament Act (2011) set the date of the next election for May 2020. This Act requires a two-thirds majority in Parliament (434 seats) or a vote of no confidence to dissolve Parliament early. PM May is going for the first of these options. This requires more than 100 non-Conservative MPs to support the Tory motion for an early election. Labour leader Jeremy Corbyn has said he supports an early election, which makes an 8 June election appear likely at this stage.

 

“PM May, who has repeatedly said that she would not pursue early elections, said she came to this decision “reluctantly”. She presented this choice as something that would support the UK’s negotiations in Brexit by providing “unity in Westminster”. She stated that key opposition parties, Labour, Liberal  Democrats and the Scottish National Party (SNP), had ‘threatened’ to hinder the progress of Brexit. In this regard, the timing of an 8 June election would be opportune: The EU is now drawing up negotiating conditions and is unlikely to enter into serious negotiation with the UK before June, meaning a UK election in this timeframe would not disrupt the tight Article 50 timeframe.    

 

“However, the Tories are also pursuing the political opportunism the Fixed Term Parliament Act was designed to remove. Although two recent polls suggested widely differing fortunes for the Conservatives, one suggesting a large 21-point lead over Labour (ComRes/Independent) the other a much narrower 9-point lead (Opinium/Observer), the majority of polls have tended towards the former. Moreover, PM May said this would be about leadership. Having committed the UK to a two-year negotiated exit timeline, she now asks who would deliver the better outcome: a “strong and stable” PM May or a coalition led by Jeremy Corbyn? This hopes to capitalise on the huge, 37-point lead she enjoyed in a recent (Ashcroft) poll on who would make the better Prime Minister. And so the Conservatives aim to crystallise an apparently strong moment, with the future threatening difficult and unpopular Brexit negotiation compromises and the potential for a rebound in the opposition.

 

“With polls, recent local elections and by-elections so supportive of Conservatives and damning of Labour’s chances, the prospect appears to be for a significantly larger Tory majority. This would not only strengthen the Tory’s ability to pursue its own interpretation of Brexit, but also PM May’s position within the Tory party (by reducing the relative strength of Tory back-benchers currently able to leverage the government’s current thin majority). This looks the more likely outcome.

 

“One risk for the government remains that the election becomes a de facto second referendum, with the Lib Dems attempting to become the party of the 48% (those that voted to Remain). Large Lib Dem gains, in keeping with recent local and by-election results, could see the Conservatives failing to secure an increased majority, potentially threatening the possibility of a future coalition. However, in many peoples’ eyes, this will remain a contest between PM May and Labour leader Corbyn. Nevertheless, there must  be a real risk that the outcome of an 8 June election would be to make a material change to the government and hence alter the course of the proposed Brexit negotiations.   

 

“Markets saw considerable movement on the uncertainty of the announcement and then in reaction to the early election news. However, despite the increased uncertainty there was a mixed reaction across different asset classes. Sterling rose reaching mid-December highs. Gilts made initial gains before the announcement, but sold-off sharply afterwards – yields are currently up 2bps at 1.04% from their pre-announcement new level. UK stocks fell, the FTSE 100 index down 0.75% and FTSE 250 down 0.5% from pre-announcement levels. Markets now appear reconciled with the UK’s chosen Brexit path and the possibility of increasing the security of this outlook appears appealing. To this extent, we suggest that signs that the Tories might struggle to increase their majority and hence shift the envisioned path of Brexit could have an adverse impact on markets over the coming weeks. But with uncertainty increased, we should expect an increase in volatility, particularly as polling “in anger” begins over the coming days.”     

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