Prime Minister Theresa May on Thursday fell short of attaining a majority in the parliamentary election, even as she signalled she would fight on despite growing calls for her to quit. May was unable to get the 326 seats her Conservative party needs for an outright majority. This essentially throws Britain’s politics into turmoil while potentially disrupting the Brexit negotiations.
Who gets power?
To produce a majority government, the biggest party, at least in theory, must win 326 seats of the 650 United Kingdom constituencies. Although incumbent Theresa May has the right to make the first attempt to form a coalition, her stance on Brexit is going to make finding a suitable coalition partner quite an uphill task, as the Liberal Democrats have said no to a coalition government, while pro-European SNP has said it wants to stop another Conservative government. From a legal standpoint though, May and her ministers remain in charge and can exercise their powers given to them to act on behalf of the country. However, they would expect to avoid taking major decisions with larger implications.
Here’s what could likely happen due to a hung parliament:
Now that Prime Minister Theresa May hasn’t been able to secure a majority in the 650-seat House of Commons, markets will have to cope with a great deal of uncertainty over who will form the next government and what negotiations the eventual prime minister will have to make to receive the support of other parties. According to Reuters, the Conservatives’ stand on Brexit as well as other issues such as austerity measures, could make the party’s chances of cobbling together an alliance with willing coalition partners very tricky.
This makes the prospect of a Labour-led government the logical outcome from a hung parliament. In this case, the situation might actually work in Labour’s favour as the party is politically closer to smaller rivals on several domestic and global issues. The party has said it would try to form a minority government, but Corbyn has dismissed any talks of a coalition after June 8. What could also turn fortunes in Labour’s favour is their decision to effectively water down Theresa May’s Brexit strategy potentially making it easier for the party to reach some sort of a compromise with either the Liberal Democrats or the pro-European SNP, which has said earlier it wants to stop another Conservative government. Liberal Democrats have ruled out any coalition. As per Labour party’s strategy, they said they will be focusing on retaining the benefits of the EU single market and customs union.
Aside from Brexit, Labour party plans to rehaul Britain’s fiscal policy, which translates to raising taxes on big firms and the wealthy to pay for higher public spending on education, police, healthcare. This seems to be the agenda that would strategically fit with the anti-austerity SNP.
Meanwhile, Analysts at JP Morgan, as quoted by Reuters, suggest that this outcome could mean a rise for Sterling. In a statement to Reuters, analyst Paul Meggyesi said that a hung parliament, in normal situations, be viewed as negative for sterling. But in the post-referendum world all political developments need to viewed through a Brexit prism and an argument can be made that a ‘hung parliament might actually be GBP positive’.
MINORITY CONSERVATIVE GOVERNMENT
Theresa May signalled today she could try to lead a minority government, but probably rely on her opponents for issue-based support. What this will do is also test the cross-party support for May’s pre-election promises. Although May’s hardline Brexit stance is opposed by all other major parties, UK has in effect already started the process of a two-year negotiation period with Brussels. Experts say it is highly unlikely she would be okay with stopping the divorce proceedings.