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Brexit: Tory landslide to unlock pent-up demand for UK property

In today’s two-part election market reaction special, Real Asset Insight examines the historic victory for the Conservatives and considers what it means for Brexit and UK property markets.

The Conservatives secured its biggest electoral victory since 1987, taking 365 seats – the largest majority since Tony Blair’s second New labour term in 2001. Jeremy Corbyn’s remodelled Labour party paid the price for taking an ambiguous position on the election’s defining issue – Brexit – and to their worst result since 1935.

The extent to which the demand-release translates into transaction activity in the short-term will depend on the size of the pricing expectation gap between buyers and sellers, according to Liam Bailey, global head of research at Knight Frank. However, the real Brexit complexity – in striking a new trade agreement with the EU – remains to be resolved which may limit the rebound in investment activity.  

The election result is expected to usher in a five-year period of greater political stability which will provide a fillip to investor confidence, business investment, a short-term boost to the GDP outlook. Sterling rallied sharply to $1.346, from $1.317 immediately before the exit poll, before rising further on Friday morning to $1.35, its highest level against the US dollar since May 2018. Sterling also rallied to €1.207 against the euro, its highest level against the since December 2016.

The Conservatives’ 80-strong decisive majority significantly reduces – but does not entirely remove – the risk of a no-deal Brexit and ensures a pathway for Johnson’s Brexit deal to clear the House of Commons. This will conclude the end of the beginning of the UK’s protracted exit from the European Union by 31 January 2020.

Dr Walter Boettcher, chief economist at Colliers International, said:

“After three and a half years of political and regulatory uncertainty, which has eroded economic performance through lack of business confidence, we now have a modicum of certainty which should be enough for many businesses to begin investing in expansion.

“While the ink is certainly not dry on either the EU withdrawal agreement, or on the terms of the EU trade deal, the broad contours are generally understood and there is less concern about an acrimonious departure. Whether this proves sufficient for all investors only time will tell.

“Sterling has rebounded and will continue to rise back toward pre-Brexit levels as further milestones in the UK departure are reached. Hopefully, the new government will find the time and resolve to begin to push forward a long-delayed agenda for national economic renewal and the long-awaited push on infrastructure and regional development.”

More market reaction in today’s second story on the UK election.

james.wallace@realassetmedia.com