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UK snap election “unlikely to affect trade”

Europe / 19-04-17 / by
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In an unexpected U-turn, UK Prime Minister Theresa May has proposed and won approval to hold a snap general election that could have significant implications for the country’s Brexit negotiating position, but is unlikely to affect trade.

In a public speech, May said that despite the government delivering on the mandate that it was handed following referendum results last summer, its efforts were being undermined by opposition parties, and called on an early election to end political “gameplaying”.

“At this moment of enormous national significance there should be unity here in Westminster, but instead there is division. The country is coming together but Westminster is not,” said May.

The prime minister highlighted that if a general election was not held now, the UK risked reaching the peak of its Brexit negotiations with the EU in the run up to the next scheduled election under the same divided environment and therefore jeopardised “the country’s ability to make a success of Brexit”.

“There are unlikely to be any implications for trade. While Brexit is a central issue, trade policy will be a more marginal issue, although there may be some questions about environmental and other standards in future trade agreements. The market reaction on Tuesday – which produced a small but significant increase in the value of sterling – gives you an idea of what investors think,” chief economist at advisory group Global Counsel, Gregor Irwin, tells GTR.

The election is not expected to disrupt the early stages of the Brexit negotiation, which will be more around modalities such as what will be discussed, when and by who. These discussions are expected to be able to continue in the run up to the election, which is scheduled for June 8. The European Council has said the election will have no implications for the EU’s plans to finalise its negotiating mandate at the Brexit summit on 29 April. Bigger political decisions will have been on the agenda for much later as they require the new German government to be in place following elections there in September.

The election could however have significant implications for the UK’s negotiating position.

“The campaign – and the platform the Conservatives stand on – has the potential to soften or harden the UK’s position in critical areas, as May, eyeing the prospect of a sizable majority and a personal mandate, will know, this is the moment when she can redefine what Brexit ‘means’. Hard-line eurosceptic backbenchers will struggle to oppose her if she wants to soften Brexit in some areas; equally, a weak opposition will struggle to prevent a hardening in others if that’s what she chooses,” says Irwin.

May will be constrained by the Article 50 letter and having to stay outside the single market and customs union, but a win would provide room for manoeuvre to define exactly what she means when she says she wants a “close partnership”.

EU leaders gave vague statements on the announcement. President of the European Council Donald Tusk tweeted that he had a “good phone call” with May on the upcoming elections, before tweeting a more cryptic message reading “It was Hitchcock, who directed Brexit: first an earthquake and the tension rises”. Meanwhile, the European Parliament’s Brexit co-ordinator Guy Verhofstadt said the election was a chance for the UK “to express themselves on how they see the future relationship between their country and the EU.”

Polls, as far as one can rely on them today, suggest that the question is not whether May will win, but by what margin. A BBC “poll of polls” put the conservative party between 11 and 25 points ahead of the closest opposition, the Labour party.

The Labour party has seen a significant decline in polls since the last general election, as it struggles with infighting over its leader Jeremy Corbyn, and its unclear position on Brexit.

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