It was billed as the Brexit election: the most important election since the Second World War. We were supposed to be enlightened with details from each party about what kind of Brexit would be on offer. Jeremy Corbyn was supposed to be exposed as a radical leftist charlatan. Theresa May was supposed to consolidate her position and achieve a big election victory, giving her a strong hand in the Brexit negotiations. In the end, very little was said about Brexit; and the Labour party surprised pundits by ending up making inroads into Conservative territory, while the Conservative party failed to achieve their “Brexit mandate”. It hasn’t quite gone to plan.
With all of the 650 seats declared, the Conservatives stand on 318 seats, 8 short of an overall majority. Opposition Labour stands on 262 seats, followed by the Scottish National Party on 35 and the Liberal Democrats on 12 seats: a hung parliament. Essentially it means that uncertainty will follow, though the Northern Irish Democratic Unionist Party (DUP) is in discussions with the government about a possibly form of coalition, thereby reducing the uncertainty somewhat.
As the results came in on Thursday night and early Friday morning, markets in Asia sold sterling, which sent it into a sharp decline. As the hung parliament result became clear, the pound had dropped more than 2% against the euro and almost 2% against the dollar. These declines weren’t quite as bad as it was in the wake of the referendum result when the pound fell 10% on the dollar, but it points to a potentially gloomy future. Growth for 2017 is expected to slow as higher inflation begins to take its toll. Should the pound fall any further, that position would only worsen. After the Governor of the Bank of England cut interest rates last August, there seems little chance of their being increased in the foreseeable future.
The political situation naturally complicates an already difficult picture for businesses, with Brexit already making it difficult for corporates and foreign investors to plan for the future, due to the lack of clarity on the future immigration regime and visa system, currency fluctuations and rising costs.
However, some businesses see a silver lining with the possibility (not currently based on anything concrete) of a softer Brexit emerging, even to the extent of the UK retaining some form of single market membership and the relaxation of proposed immigration reforms. Any agreement between the government and the DUP may also suggest that the UK could remain inside the customs union, due to the DUP’s unwillingness to reimpose a hard border with the Republic of Ireland.
Whatever the outcome, any Brexit planning and future-proofing that businesses had conducted up to now may need revisiting to reflect yet another level of uncertainty.
With Theresa May having already triggered Article 50, the clock continues to tick towards the UK leaving the EU at the end of March 2019. Seven weeks were lost for the election campaign; more time could be lost from assembling a reshuffled cabinet and finalising the arrangements with the DUP. There may yet be a further election in the short to medium term.
As there is more than enough to negotiate between now and Brexit day, calling the election after triggering Article 50, knowing there was a strict two-year negotiation period, was risky.
(For more information on legal procedure for the UK to withdraw from the EU under Article 50, see Practical Law’s Practice note, Brexit: Article 50 and the withdrawal process).
The EU set out its proposed timetable and expects to begin the negotiations with the new government just eleven days after the election. As unlikely as that timetable seemed, Theresa May has confirmed that she will attend those talks on 19 June, though in the days after the election, the Brexit minister David Davis has suggested that the opening of talks could be delayed.
(For more information on the Brexit negotiations and the withdrawal agreement, see Practical Law’s Practice note, Brexit: Article 50 negotiations and the withdrawal agreement. You can also track the main developments in the negotiations using Practical Law’s Brexit negotiations: tracker).
What those Brexit talks will now look like is much less clear than it was before the election.
Part 2 will be released tomorrow and will explore ‘What happens Next?’.