Prime Minister Theresa May’s surprising announcement for a snap election brings the British people to the polls again for the 3rd time in as many years. Image credit: www.themirror.co.ukThe dust has barely settled since Brexit, yet the UK is now bracing for another political turn of events, thanks to PM Theresa May’s call for a snap election this June. This will be the third time Britain will go to the polls in as many years. The surprising announcement saw shock waves reverberate across the FTSE and capital markets as an immediate reaction. Meanwhile, the IMF has revised up its forecast for UK growth this year – from 1.5% to a punchy 2%.
“Naturally, there there are pros and cons. But in a nutshell, the election will pave the way to a clean slate, for the new government to gracefully negotiate Brexit to protect the interests of Britain and its investors/stakeholders. However, the issue of housing shortage remains critical. There will be uncertainty in the market from now leading up to the election, but the impact will not be a long-drawn one, given the short time frame and the surprise element of the PM’s announcement. This is the opportunity the new government should seize to address housing supply for the sake of first-time house buyers, and policies for the sake of landlords, foreign property investors and the buy-to-let market who are crucial in housing supply,” said Virata Thaivasigamony of CSI Prop, alluding to changes in stamp duty policies announced by the UK government.
- Stronger Sterling
The sterling rallied to its highest level in more than 6 months on the day of the PM’s surprise announcement, jumping 2.37% to $1.2904 against the USD — its highest surge since early October 2016. Deutsche Bank, one of the world’s biggest sterling bears, finally reversed its stance on the sterling, describing the early election as a game-changer for the currency. We accurately predicted that the value of the sterling will drop and rise again with Brexit & Article 50, which was what happened. Our sense is that the sterling will continue to strengthen over the next few months.
- Housing Market
The housing market in the UK has been generally resilient. However, there will be uncertainty in the housing market leading up to the election; major decision-making may be put on hold until the election results are out. Uniquely, the announcement was not leaked, which means the uncertainty will be relatively short as the element of surprise has prevented any build-up to affect the housing market. Ultimately, there is a chronic and unsustainable shortage of housing in the UK, which will continue to underpin housing market. Demand will outpace supply and keep prices up for years to come. However, the election is an opportunity for the new government to begin on a clean slate and affect change that benefits the market. It is an opportunity also for the new government to revise legislations and policies on behalf of local landlords, foreign property investors and the buy-to-let market as they play a party in the supply of housing. A clear election result could boost the housing market.
- Brexit Negotiations
Our sense is that if Theresa May consolidates her position, it will strengthen her mandate to bring more stability particularly vis-a-vis Brexit. Her domestic agenda is to build a country that works for all. A big win means she will be less answerable or beholden to groups interested in a ‘hard exit’; it gives her flexibility to make compromises and cut a more moderate deal for Brexit without worrying about support from the party or Eurosceptics. This will obviously have a positive effect on the UK economy and the pound will keep strengthening. Economists also argue that the election raises the chances of a ‘transitional deal’ after 2019 (when Brexit should have happened), as the next government won’t need to hold another election until 2022 . This is good for investors who are taking advantage of the favourable exchange rate.
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