Maybe it was “the economy what did it.” It would seem that if there is one lesson from the election June 2017 it is that the economy still matters.
It was Bill Clinton’s strategist James Carville who said: “It’s the economy stupid.”
The UK economy grew at just 0.2 per cent in Q1, the slowest rate of growth in the G7. UK inflation is on the cusp of exceeding rises in wages. Retail sales fell for three months on the trot earlier this year, according to the Halifax Housing Index, house prices fell in February, March and April.
This was not the most auspicious backdrop to call an election: it seems: “it’s the economy stupid” still holds.
So what next for the economy?
Paul Hollingsworth, UK Economist, Capital Economics said: “the economy has proved pretty resilient to political uncertainty in the recent past. And even if the Conservatives are able to govern with only a slim working majority, there have been occasions in the past when weak Governments have been able to hobble on without any discernable negative impact on the economy.”
Sterling is likely to remain under pressure as uncertainty persists. The fact that a “progressive alliance” looks unlikely to succeed means that fears about much looser fiscal policy might not hit the gilt market too hard. While the FTSE 100 might be supported by the lower pound – as it was after the Brexit vote – the FTSE 250 might perform worse on concerns about how all this will impact on demand in the economy.
Richard Berry, founder of the currency specialists, Berry FX, said: “The markets opened on Friday exactly where they didn’t want to be — with a huge cloud of doubt hanging over both Britain’s political future and the course of Brexit. Opinion polls correctly predicted that Theresa May’s dreams of a decisive mandate were coming unstuck, so while this is an unwelcome result for the markets, it is less of a tectonic shock than that of the Brexit referendum. With Brexit negotiations due to start in little over a week, many in Brussels will be secretly licking their lips at the prospect of Britain’s weakened leader kicking off the process in shame rather than with a swagger. In reality, of course, the Brexit negotiations will be put on ice. There are so many variables in play that the Pound could even rise in the days ahead as the likelihood of a soft and more palatable Brexit increases. As perverse as it seems, political chaos could ultimately translate into Sterling strength.”