May loses majority at election: What’s next for the UK’s economy?

A disappointing outcome for Theresa May: The British Prime Minister was obviously not happy with the recent election result, which led to her losing power in Parliament. While May’s intention when calling for a snap election was to gather more support ahead of the impending Brexit negotiations, her plan backfired, leaving the parliament hung and May with less support after the election than before. The British Pound reacted to the results, tanking some 2.5% after the election.

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While May’s top priority is to ensure the Brexit process will go as smoothly as possible, it is important to remember that the average British citizen may have a different set of priorities – which could explain the outcome of the recent election. Now, May faces more hardship, as she starts to negotiate the EU-UK divorce while trying to keep her own house in order.

Failing to reach a majority in parliament

Before the election, May’s conservative party held 330 parliament seats, enough for a majority, albeit a narrow one. After the election, the Tories now hold just 318 seats, forcing May to form a coalition just to have a majority. While still winning more seats than the second-place Labour party, this proved to be a devastating blow for the Prime Minister, with voices within the UK calling for her resignation.

May will now have to recruit the Democratic Unionist Party, which will have demands to secure its support – and this is just to reclaim the majority she had before the election. Labour leader Jeremy Corbyn has been saying that May should step down and it seems many of the UK are behind him, with a recent poll showing some 48% are in favour of May’s resignation, while only 38% support her staying.

Another hit for the UK economy

At the end of the day, this election was all about the Brexit process for May. Negotiations are starting on June 19th and May will most likely stay at the helm, trying to secure the best possible deal for her country. The British economy is still licking its wounds from last year’s Brexit vote and has now been served another blow. After the election, the FTSE and the Pound, two key indicators of the UK’s economic health, showed losses, with the latter tumbling 2.5%.

The GBP tumbled 2.5% | Source: eToro

What was supposed to be May’s triumph has now left her weakened. She faces a lack of support from within her political party and has lost the faith of the public. May’s vision of an economically independent UK, severing all ties with the EU in what was dubbed a ‘Hard Brexit’, is now all but gone. Now, May will have to compromise and either change or forfeit nearly all of the legislation she planned on passing with a house majority.

Looking ahead

The UK is still the world’s fifth largest economy and in Europe, second only to that of Germany. Therefore, it still has a lot of leverage and its significant size and dominance in global markets remains. However, this election result, coupled with EU enthusiast Emmanuel Macron’s recent win in France, has changed the European balance of economic power to be more in favour of the Union.

Providing May will stay Prime Minister, she will need to manoeuvre her way during the negotiations, while trying to appease both the British people and her new-found political allies. Therefore, it is safe to assume that every major decision announced during the Brexit negotiations could affect the British Pound and the FTSE. There are still more questions than answers regarding the future of the UK’s economy at this point, however, one thing is certain: Theresa May’s ride to parting ways with the EU just got a whole lot bumpier.