Conservatives Win General Election; Sterling Rallies

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Boris Johnson
London Mayor Boris Johnson speaks during the Conservative Party Conference in Birmingham, central England September 30, 2014. Reuters

The Tore’s won a decisive majority in the UK general election, providing a stunning defeat for the Labour Party. This will provide a roadmap to Brexit which is happening by January 31, 2020. The election also provided a change for Scotland to go to the polls again for a second referendum. UK riskier assets accelerated higher led by small cap domestic stocks. The sterling rose against most major currencies as investors saw the victory as a positive for the UK. The alternative would have been a disaster for UK assets, putting downward pressure on the pound and stock prices.

Brexit Will Happen

In the wake of the election the pound hit a fresh 19-month high, as Boris Johnson notched up a resounding victory. Sterling also rose approximately 1.5% against the euro. Commodity trading was also volatile as riskier assets gained traction and commodity trading in product such as gold, whipsawed. Brexit will now move forward with a timeline that is very tight but the exit from the EU by the UK will not necessarily be a hard Brexit. Boris Johnson’s Conservative party won a large majority in the House of Commons, taking 364 seats out of 650. The Labour Party won just 203 seats, losing nearly 60 since its strong showing two years ago.

A parliamentary majority of 76 means that the Conservatives will not be hostage to the Brexit-hardliners and therefore the Conservatives will be able to negotiate a deal to their liking. The timeline is very tight and is scheduled to end on December 2020. Johnson said he wouldn’t extend the deal, but he will not want to fall back on WTO rules if he is unable to negotiate a deal with parliament.

Scotland takes Center Stage

The SNP in Scotland won 48 seats during the general election which compares to the 35 the SNP won in 2017. SNP leader Nicola Sturgeon declared that Scotland has sent a clear message to push for another independence referendum. This is a vote for Scotland to leave the UK. The emphatic victory pits a euphoric SNP against a Conservative majority government that has promised to reject a second referendum no matter the result of the 2021 Scottish parliament elections.

Liberal Democrats are the Losers

The defeat of the Liberal Democrats suggests the far left will need to move to the center. The election results were the worst for Labour in 80 years and Jeremy Corbyn, the leader has already said he will step down. The Liberal Democrats didn’t even manage to secure a seat for its leader Jo Swinson. The logical outcome will be for Labour to redefine itself with a more centrist platform.