Brexit in Question Following Hung Parliament?

Friday, June 9th, 2017

Whether or not the testimony of former FBI Director James Comey on Capitol Hill yesterday was a surprise to market participants or not, every syllable was surely analyzed, ad nauseam. Less thoroughly reported on — yet arguably more surprising and with swifter ramifications for the global market — was the hung Parliament that resulted from the U.K. general election yesterday. The Conservative, or Tory, party failed to win a full majority of seats; this opens up far more possibilities for the U.K. government going forward.

First, the Tories did win 318 seats, as opposed to the Labour party's 261 (it takes 326 for a full majority), so Conservative Prime Minister Theresa May gets to keep her job. The question becomes whether or not May will be able to bring together a coalition of the Tories with seats from one of the lesser parties in the U.K. Reports this morning suggest May is looking toward the small Northern Ireland Democratic Unionist party. Otherwise, forming a ruling government from minority position may be an option.

In practical terms, what this directly points to is the Brexit referendum. It would appear that without a full majority of Tories in Parliament, a hard Brexit — meaning, a swift and potentially painful removal of the U.K. from the European Union EU — may be off the table. Indeed, the Brexit measure may be in question overall, as the British citizenry looks to have at least partially decided to give a re-think to the momentous decision from last summer.

May herself has already stated that Brexit talks will move forth 10 days from now, regardless. But her calling for this special election was intended to have strengthened her hand with more Tory seats, not fewer. This is reminiscent of former Prime Minister David Cameron's decision to call a Brexit vote, expecting U.K. voters' cool heads to prevail and remain within the EU, only to see things go quite wrong in a real hurry.

There is even a chance May could step down as Prime Minister at some point in the future, if she is unable to govern successfully with a worse parliamentary hand than she held previously. An outside chance sees a way Labour party head Jeremy Corbyn — known as the Bernie Sanders of Britain — might form a successful minority coalition and usurp the Prime Ministership for himself. Far more likely, however, is that May finds a way to curb the hard Brexit to something more gradual and less radical than initially proposed.

Finally, since the election of President Trump in the U.S. last November, three major decisions from voting populaces in greater Europe have gone away from right-wing populism and toward centrist government representation — in Holland, France and now the U.K. It would seem the political trends of 2016 have indeed begun to reverse course.

Mark Vickery
Senior Editor

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