As the shock results of the UK election confirm a hung parliament, businesses will be bracing for what comes next, as uncertainty grows just days before the start of Brexit talks.
Michael Metcalfe, global head of macro strategy at State Street Global Markets, observed: “Markets were poorly prepared for this surprise result in UK. While the dramatic narrowing in polls prior to the vote had introduced an element of doubt, an outright Conservative victory was still the base case scenario for most.
“The only thing we can be certain of now is that political uncertainty will rise significantly, as will the required premium for UK assets.
The uncertainty has spread as the pound fell against the US Dollar and the Euro, leaving it at just below $1.27 and €1.135.
Phil Shaw, chief economist at leading investment firm, Investec, said: “Sterling is vulnerable to a further sell-off.
“Of course, the irony is that the government’s attempt to engineer a long period of stability has achieved precisely the opposite.”
Bill Street, head of investment for EMEA at State Street Global Advisors, commented: “While sterling weakened in the final weeks of the election campaign, markets still expected a Conservative majority, therefore this initial sterling weakness is no surprise and is likely to continue as international investors demand a higher risk premium.
“Sterling is already substantially undervalued against the dollar and euro, reflecting future uncertainties. Such under-valuations do tend to correct over long time horizons and it is possible the election result will lead to a softer Brexit. However, any move higher is likely to be delayed until there is greater certainty.
The election outcome has also impacted Brexit strategy, which in turn will create more uncertainty for businesses in the long-term as they wait for a clearer path to be set.
Paul Hardy, Brexit Director at global law firm, DLA Piper, said: “This will pose a significant challenge for any government to implement a Brexit strategy.
“Moving forward on Brexit negotiations is going to be very difficult. The date for starting the negotiations will be pushed back, further eating into the two-year period.
“This additional political uncertainty is bad for businesses, who may find it even more difficult to make big decisions on jobs and investment, given this result’s implications for Brexit negotiations, as well as on coherent policy making at home.”
Metcalfe, also gave this outlook, saying: “The government has fallen at its first election hurdle. The approach to the potentially larger and more dangerous hurdle of Brexit will now surely be delayed.
“It is a shock that markets were not well prepared for, and in response sterling is likely to remain under pressure.”
The unprecedented turn of events is also predicted to impact the housing market, with senior manager at London property group London Central Portfolio, Lauren Kemp, observing: “It is anticipated that transactions will continue to fall in Prime Central London whilst investors assimilate the new situation, particularly at the luxury end and in the new build sector, already battered through the introduction of new residential taxes.”
Brendan Sharkey, head of MHA MacIntyre Hudson’s Property & Construction sector added: “Both the Conservatives and Labour recognised the need to build new homes and the only difference between them was how many, and by when.
“The Conservatives out-bid Labour by committing to build 1 million homes by 2020, with an additional 500,000 by 2022. Such targets are unlikely to be met while we have this political vacuum.
The outlook is plagued by uncertainty and International Head of Corporate at DLA Piper, Bob Bishop, offered this perspective: “Many in business wanted nothing more than certainty to flow from this election.
“Certainty helps stabilise the markets, underpins the economy and could have provided a firmer footing for Brexit negotiations.
“The result – a hung parliament – offers anything but. Expect continued pressure on the pound, increased market turbulence and stronger headwinds when it comes to M&A.”