UK sterling stabilises as May vows to form a ‘stable’ government

LONDON (ICIS)–The UK’s pound sterling stabilised on Friday morning after a dramatic electoral result made investors nervous, although current Prime Minister Theresa May said she would stay on despite a decreased majority in Parliament. 

The FTSE 100 was trading 0.41% higher on Friday by 13:00 London time, compared to the close on Thursday.

UK chemical stocks were also trading higher on Friday, with Johnson Matthey’s shares trading up 1.33% to £29.86, compared to Thursday, and Croda’s stock was trading 0.92% higher to £39.31.

When the polls closed in the UK at 22:00 on Thursday, the national broadcaster BBC’s exit poll showed a ‘hung parliament’ – with no party reaching the threshold for an overall majority – and sterling quickly lost ground against other major currencies.

From an exchange of £1:$1.30, sterling fell in a few minutes to £1:$1.27, while by 13:00 London time it was already back up to £1:$1.28.

Against the euro, sterling was trading before the exit poll at £1:€1.16, it quickly lost ground to £1:$1.14, a level at which the UK currency was trading by 13:00 London time.

With only one constituency to declare by 13:00 London time, the UK’s Conservative Party had gained 318 seats in a 650-strong House of Commons, eight seats short of an overall majority.

The opposition Labour Party, which fought the election on a left-wing manifesto which seems to have attracted young voters and brought back traditional working class supporters, improved its results to 261 members of parliament (MPs), while the Scottish nationalists of the SNP gained 35 seats. The Liberal Democrats gained 12 MPs.

The key for Theresa May to form a government with the support of a majority in parliament lies now with a small Northern Irish party, the DUP, which obtained 10 MPs and whose policies are close to those of the Conservatives.

The UK’s chemical trade group said in a short statement on Friday it was looking forward to working with whichever party ended up forming a government, adding the country needed now a stable government to face the “huge” challenges coming ahead related to the exit from the EU.

“Our industry will work with whatever political outcome arises, which we hope will be as soon as possible to help deliver the certainty business needs to tackle the huge economic challenges facing the country,” said the CIA’s CEO Steve Elliott.

“We have long worked with the main political parties across the country to enact policies that we believe allow us to contribute to the environmental, social and economic success of the UK. Every successful economy has a successful chemical industry. We want to maintain and grow one in the UK.”

By the time May called the election in April, opinion polls were showing a comfortable majority for her party. Her intention was, she said at the time, to strengthen her hand in the upcoming Brexit process to negotiate the UK’s exit from the EU.

Soon after visiting the UK’s head of state, Queen Elizabeth II, May said she would form a stable government in order to command the negotiations with the EU, which are due to start on 19 June.

“I will now form a government which can provide certainty and lead Britain forward at this difficult time for our country,” said May.

“What the country needs more than ever is certainty. It’s clear that only the Conservative Party and the DUP have the legitimacy to command that majority in the House of Commons.”

The result, however, has left May damaged. While analysts had expected a large Conservative majority, talk about a ‘soft Brexit’ quickly came back to the UK political discourse on Friday.

May’s plan to exit the EU included leaving the Single Common Market, which gathers more than 500m people in the EU, as well as leaving all jurisprudence from the European Court of Justice (ECJ).

The surprise results, however, have given pro-EU parties new breath and May’s own allies, the DUP, may be inclined to keep access to the single market to preserve the no-border policies between Northern Ireland and the Republic of Ireland, anchored in the Peace Accords of Good Friday from 1998.

“Another election is possible at any time really. How this leaves the Brexit negotiations is a complete mystery. The range of eventual outcomes are now much wider on this front. Hard line Brexit Tories will hold more power in a weak Tory [Conservative] administration of some form but the possibility of fresh elections relatively soon and an alternative more soft line approach is also a possibility,” said London-based analysts at Germany’s investment bank Deutsche Bank.

“Given we’re on a tight Brexit timetable this is not great news for the UK. The Europeans must be watching with some amusement. Overall it’s going to be constitutional chaos in the UK for the foreseeable future. Ironically the Conservative Party look set to win around 44% of the vote and increase their share – an impressive number in the context of recent decades.”

Pictures above: UK’s premier Theresa May announces on Friday her intention to form a government.
Source: James Gourley/REX/Shutterstock