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TalkingEconomics: Snap UK election offers hope for a softer Brexit

Prime Minister Theresa May’s surprise announcement that there will be an election on 8 June has been cheered by investors. The economy is on the verge of slowing, making holding the election more urgent for the government.

03/05/2017

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

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The British people will be heading back to the polling booths yet again after Prime Minister Theresa May called a general election for 8 June. She claims that she needs to hold an election to strengthen her hand in Brexit negotiations, and to achieve the best possible outcome for the UK.

Investors cheered her announcement, pushing sterling to its highest level against the dollar since September 2016.

Worry about your friends, not your enemies

Theresa May has complained that “other parties and members of the House of Lords have sought to frustrate the process” but it could be that the opposition to her plans stems from within her own party. With a majority of just 17 seats in the House of Commons, the prime minister is in a difficult position.

A Brexit plan that is too “soft”, or waters down some of the promises made would lead the more “hard core” members of her government to vote down the final deal. If, on the other hand, the settlement with Europe appears to be too “hard”, then the more pro-European wing of her party could also vote with opposition parties and block the final deal.

May therefore needs a bigger majority, and one that is bolstered by new, young and ambitious parliamentarians, that will not rebel against her plans. Remember, the only other female British prime minister was felled not by election defeat, but by her own party.

Make hay while the sun shines

Regular readers of this publication will be familiar with our view that the UK economy is likely to slow soon as households are squeezed by the rise in inflation. Indeed, we are now seeing signs that the household sector is beginning to tighten its belt.

Given the likely slowdown in growth, it makes sense for Theresa May to call an election sooner rather than later. While consumer and business confidence remains high, she is more likely to translate her lead in the opinion polls into a dominant victory in the election. Some are even projecting that she could win the biggest majority since the Second World War.