Brexit Watch: investors poised for six weeks of volatility as UK prepares to go to the polls

MPs backed Boris Johnson’s call for an election on 12 December – exactly six weeks tomorrow – raising the prospect of two very different political directions for the country and outlooks for business sentiment. If the Conservatives were to win a majority, the probability of a hard Brexit would increase, which would be tempered by Johnson’s pro-business policies.

If Labour were to win a majority, the probability of a soft Brexit would increase, and with it even the possibility of a second referendum and a chance the the 2016 EU referendum could be overturned. A Labour government under Corbyn, however, may well prove unpopular with the business community, given the Labour leader’s position on, among other things, corporation taxation, privatisation of utilities and transport.

The read-through for the business environment is a volatile period for pound and the outlook for the UK economy at large is nebulous and bipolar. Furthermore, in the event of another hung parliament, the Brexit paralysis could well endure forcing a people’s vote, some commentators have suggested.

Capital Economics has assumed a 50% chance of the Conservatives winning a majority at the election, a 13% chance of Labour winning a majority and a 37% chance of another hung Parliament. “If the Conservatives win, we’ve assumed there is a 70% chance of a deal and a 30% chance of a no-deal by 31st January. If Labour wins, we are assuming that Brexit would be delayed beyond 31st January. Thereafter, we have supposed that there is a 50% chance of a deal and a 50% chance of a second referendum, at which there is an equal chance of a deal and remain,” the forecaster wrote.

Nigel Green, CEO and founder of deVere Group, the independent financial advisory firm, says: “This is a critical stage in the slow-moving, damaging, torturous Brexit saga. Expect the pound and UK financial assets to be increasingly volatile in the run-up to the general election, given the wide-ranging set of outcomes. The most detrimental of these outcomes for sterling, UK financial assets and the wider British economy, include another hung parliament or a victory for Jeremy Corbyn’s Labour party.”

“[Another] hung parliament looks like an alarming possibility, meaning there could be no majority to quickly and smoothly resolve the Brexit chaos. Should grinding deadlock continue, the UK economy would still haemorrhage investment and confidence. The fallout of Brexit has cost the UK three and a half years of lost opportunity and many, many tens of billions of pounds. This would only intensify with another hung parliament.”

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