While Westminster comes to terms with a hung parliament, Britain was plunged deep into political uncertainty after last week’s inconclusive General Election.
It is therefore important to understand the impact on investors over the coming months because of this.
“Clearly the pound is a little bit weaker, I think it’s going to bounce around for a while and then probably get weaker again,” Guy Hands, founder of private equity group Terra Firma, said.
“I think England is going to become very cheap so from an investment point of view, probably hold back a little bit but at some point step in and buy,” he added.
Prime Minister Theresa May and her ruling right-wing Conservatives will now seek the support of Northern Ireland’s Democratic Unionist Party (DUP) in order to govern after they lost their parliamentary majority in Thursday’s snap election.
“Markets don’t quite know how to price this and that is the fundamental reality of the position,” Tapan Datta, head of asset allocation at Aon Hewitt, said.
“We are still working on the idea that a (Brexit) Armageddon has been avoided and we don’t have that fabled cliff-edge in a couple of years’ time,” he added.
In a bid to provide “certainty” for the British people, May has vowed to continue governing since the result.
Formal Brexit negotiations would stick to the current timetable and begin on June 19 regardless of any perceived Westminster tumult, the U.K.’s prime minister also insisted.
With some EU diplomats questioning whether May would continue with her pursuit of a so-called “hard” Brexit, speculation in Brussels has intensified in the aftermath of Britain’s vote.
“The inconclusive election outcome will complicate and probably delay Brexit negotiations (and so should be) credit negative. The time frame for the UK’s withdrawal from the EU in March 2019 remains unchanged, reducing still further the time available to achieve the transition agreement needed to avoid a ‘hard’ Brexit,” a team of analysts at Moody’s Investor Service said in a research note.
The uncertainty created by the General Election had caused business confidence to fall “through the floor”, suggested the Institute of Directors, a U.K. based lobby group.
“It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy,” Stephen Martin, director general of the Institute of Directors, said in a statement.
Meanwhile, one analyst suggested a hung parliament could even be a blessing in disguise and forecast a much brighter outlook for the U.K. economy.
“The negative sides of the U.K. story are constantly and very loudly put but actually, look at the fundamentals…,” Stephen Jones, chief investment officer of Kames Capital, said in a TV interview.
In addition to consecutive quarters of economic growth, in light of the election result, it would not be wise for investors to dismiss record low unemployment levels in the U.K., Jones explained.
“We do have a bit more uncertainty but we have also got a situation that probably doesn’t allow anybody to do anything terribly daft. We have a difficult negotiation to come but that will be done in a more pragmatic, consensus-based way involving more people,” Jones added.
(Adapted from CNBC)