Investors In UK Are Weighing Chances Of Another UK Election Due To Fears Over A Government Collapse

With the potential for another election still a distinct possibility, many market participants are kept on the edge by U.K. leader Theresa May and her weakened government despite the fact that the government has weathered a particular nasty political storm in recent months.

There is “considerable risk of the (U.K.’s) government collapsing,” says Joan Hoey, the Economist Intelligence Unit’s regional director for Europe. Hoey explained that May’s slender 3-seat majority could well “disappear quickly as a result of by-elections that will occur” which has been forged only through a compromising, expensive deal with the Democratic Unionist Party.

Even while stoic socialist and opposition leader Jeremy Corbyn visited Brussels to meet with major European players in Brexit negotiations, the U.K. prime minister marked one year since she took the country’s helm on Thursday this week.

Rubbing salt into the wound of her loss of a government majority in last month’s General Election was a YouGov poll released last Friday which denoted Corbyn with an eight point-lead over his rival May, which seemed to add to the jostle for power between the two politicians. When the U.K. will hold it’s next vote is something that the voters and investors have been left wondering about by the shifting fortunes of the Labour and Conservative leaders.

Saying that: “My commitment to change in Britain is undimmed … The determination I have to get to grips with the challenges posed by a changing world never more sure”, despite the uncertainty, said May, underlining her resolve to lead the country, in a speech on Wednesday.

Party sentiment forms the basis of the potential for a new election for some. “The only way this will come about is through political will”, said Alex Greer, research and communications officer at thinktank Open Europe. He added that the future of the U.K. government is “all about Conservative rebellion.” Greer said that whether Conservative Brexiteers opt for either “forming a coherent majority or digging heels in over a matter of principle” forms another dependability of another vote.

Shadow Brexit minister Keir Starmer tweeted that “constructive discussions” had taken place, following Corbyn’s trip to Brussels. “Corbyn is trying to show that he’s a prime minister in waiting,” Hoey said.

Due to varying degrees of pro-EU sentiment, Hoey warned that Corbyn is still “walking a tightrope within his own party,” despite a surge in momentum following an unexpectedly positive General Election result.

May’s vow to deliver Brexit, a process which itself has a two year allotted timeframe, could be the dependency for Theresa May’s lasting power in Number 10. While it has since waned, sentiment to boot May out of her leadership position was at its peak immediately after the election, some analysts pointed out.

Following the shock vote to leave the EU in June 2016, the U.K. economy has surprised onlookers with its initial buoyance. But there are signs of trouble for the economy that are ostensibly gathering on the horizon. Partly due to a decrease in exports of services, the country’s trade deficit widened by £2 billion in the 3 months to May 2017, according to data out last week. Construction and industrial output also contracted.

A fresh vote would be “pretty bad news (for investors) as it underlines the instability the U.K. is suffering from”, said David Lea of consulting firm Control Risks, with regards as to what a fresh vote could mean for investors.

“Business would start looking at the U.K. and question if it was rock solid,” he added.

(Adapted from CNBC)

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