United Kingdom Politics April 2017

United Kingdom

United Kingdom: Theresa May calls snap election, seeks stronger mandate for Brexit negotiations

April 25, 2017

Prime Minister Theresa May caught the general public, analysts and even members of her own cabinet unawares on 18 April with a call for a snap election on 8 June despite previously repeatedly ruling out this option. The decision swiftly received the near-unanimous approval of the UK parliament, marking the third time the country will head to the polls in less than two years. All opinion polls point towards major gains for the Conservative Party, allowing it to strengthen its parliamentary majority.

The potential economic impact of the election is unclear. While it is unlikely to affect the EU’s negotiating position or the start date for talks, already slated to be in early June, it does have the potential to impact the UK government’s strategy, allowing Theresa May to steer Brexit talks in the direction she chooses. On one hand, a larger Conservative majority would be a vindication of the government’s current combative negotiating stance and give the Prime Minister a stronger mandate to push ahead with “hard Brexit”, which would likely entail withdrawal from the single market and restrictions on immigration.

On the other hand, a beefed-up Conservative presence in parliament would give May more wiggle room in negotiations, making it possible to soften her current hardline stance without requiring the approval of far-right Conservative MPs. This could include making concessions regarding the jurisdiction of the European Court of Justice in the UK, free movement of people or access to the single market, making it easier to reach an agreement with the EU and potentially dampening the economic impact of leaving the union. Much hinges on Theresa May’s personal preferences for Brexit. Despite campaigning for Remain, she has struck a hardline tone since the referendum.

On the domestic front, a renewed Conservative majority won’t herald a significant change in economic thinking. The government will remain committed to fiscal prudence, gradually paring back the government deficit over the next few years thanks to constrained spending increases. However, although a detailed party manifesto is yet to be published, Theresa May will look to mark a distinct profile to her predecessor on certain economic issues. She has already given some hints as to the direction of travel, with a speech earlier this year pointing towards a more interventionist industrial strategy, although many policy measures have yet to be fully fleshed out.

Were the Conservative party to lose their parliamentary majority at the election, this could usher in a period of political instability, heaped onto the heightened economic uncertainty surrounding Brexit. This time around, a repeat of the 2010 alliance with the Liberal Democrats is highly unlikely to be on the cards, given the two parties’ polar opposite positions on Europe. In the unlikely scenario of a victory for the Labour party, it isn’t entirely clear what this would entail regarding Brexit. Although the party’s policy on the matter is gradually crystalizing, with a recent commitment to guarantee the rights of EU nationals currently residing in the UK, firm policy commitments on key economic areas such as access to the single market and immigration are yet to be announced. On the domestic front, the party would pursue a left-wing agenda, with previously mooted policies including renationalizing the railways, increasing the minimum wage and putting an end to zero-hour contracts.

With the timeframe for EU exit negotiations desperately short, a transitional agreement will probably be necessary to stop the UK crashing out of the EU in March 2019, with the finer details of a trade deal between the island nation and the continent being hammered out after this date. One advantage of holding elections this year is that the following elections needn’t be held until 2022, rather than in 2020. This will avoid the potentially economically disruptive effect of heading to the polls while the government is still locked in talks.

The Central Bank expects the economy to expand 2.0% in 2017 and 1.6% in 2018. This month, FocusEconomics’ panelists have upgraded their GDP projection for 2017 and our Consensus Forecast now foresees 1.7% growth—up 0.1 percentage points from last month’s estimate. The Consensus Forecast shows GDP expanding 1.3% in 2018.

Author:, Economist

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