Theresa May has called a general election to take place on 8th June. The implications are at the same time both momentous and modest. They are momentous because it looks likely that she will win a substantial majority to replace her slim majority. They are modest because although her majority was only 17 seats she has still been able to govern without much in the way of credible opposition. It should also be noted that she could have waited until next year’s boundary reforms which are expected to further strengthen her party’s position.

Because of the Fixed Terms Parliament Act she will need a majority of two thirds of parliament in order to hold the election. It is likely that Labour will vote with the government (it’s pretty difficult for the opposition to ever not want an election, making the Fixed Term Parliaments Act a bit pointless) so this should not be an issue.

Conservatives likely to build a significant majority

There is little doubt what the most likely outcome is. The Conservative’s lead Labour by 18 points in the polls (very unusual for a government mid-term) and the bookmakers place the chance of a Conservative majority at 80%.  The rationale for holding this election is that it will be a greatly increased majority with predictions based upon a uniform swing suggesting a majority of over 100 seats, almost exclusively at the cost of Labour. Beyond that, current polling suggests that other parties will see little change. No doubt that will change when the campaigning begins.

The key part of the Conservatives platform seems likely to be the promise to deliver what has been termed a hard Brexit through robust negotiation with the EU. It remains to be seen, however, whether the more generally populist and large government rhetoric which accompanied the Prime Minister’s speech at last year’s party conference returns when the Tory Manifesto is published in the coming weeks. The anticipated increased majority is seen as strengthening her hand when it comes to the Brexit negotiations.

Sterling strengthens on the news

The pound soared in response although partly to offset a dip which had taken place while waiting to hear what she had to say. That may seem counter-intuitive as traders have been betting on sterling to fall ever since the Brexit vote. The election is likely to shore up the government’s hard Brexit line making it even more likely to follow through. We have felt for a while that the pound would rally because the fall it has suffered since last June has left it trading cheaply and eventually those who have been speculating on its decline would need to close their positions.

Gilts and the FTSE reflected those moves in sterling with yields rising as the pound rose and the FTSE declining, reflecting the impact on translated overseas earnings. If the pound continues to strengthen, this could be a recurring theme.

Today marks the financial markets moving on from the question of what-type-of-Brexit they are expecting and on to what-kind-of-Conservative-majority they can hope for. Generally a centre-right party can be assumed to be a market-friendly outcome. There are, however, two important caveats; The first is that investors have struggled to understand how centre-right the current government is (as evidence by dismay at the PMs conference speech).  The second is that sometimes what the market thinks it wants before an election is quite different from what it decides it wants after an election (as Donald Trump proved when he was elected last year).

With yet more uncertainty added to the mix, we feel that the value of personalised and ongoing advice has never been more obvious. We will continue to monitor both the macro economic situation and the responses and performance of the fund managers we recommend (and those that we currently don’t) to ensure that we can give each and every client the most up-to-date personal advice possible. We will also continue to publish documents like this whenever we feel that there are any significant developments.

As is always the case, if any clients have any specific queries, please get in touch and your adviser will give you all the guidance you require.