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12th June 2017 Your Commercial Awareness update

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In a week dominated by the General Election, the business and political press have hardly mentioned anything else. The strong showing for the Labour Party was not only unexpected but has left many trying to work out what’s going to happen next. The large Conservative majority predicted by the polls was far from the truth, as Theresa May’s gamble most certainly didn’t pay off. I’m sure you will have read lots about it, so for this update I’m going to pick out a few essential points of discussion.

1. The Markets

The markets don’t like uncertainty and, with the result of this election, that’s exactly what they got. The pound had its worst day of trading this year on Thursday as it became clear the UK was heading for a hung Parliament, initially dropping 2.5% against the dollar to below $1.27. It did recover to $1.274, but confidence in the UK economy has been shaken once again. The unexpected nature of the result caught speculators off guard, many of whom had taken a position in the markets certain that Theresa May would strengthen her majority.

As the pound fell, the FTSE 100 was actually reasonably stable. The markets dropped throughout Thursday, before the results were clear, but there was a sharp rise when they opened on Friday morning. This follows the trend of the last 12 months – the pound losing value boosts the FTSE 100, as the international companies are likely to make more profits in the UK when they convert them back to dollars. The FTSE 250 didn’t enjoy the same fortune, as it lost almost 200 points on Friday morning. The index has more British businesses, which are likely to feel the impact of the political instability and the weaker pound.

According to a survey by the Institute of Directors, the hung parliament has led to a dramatic drop in confidence amongst businesses. The 700 members who responded didn’t see a quick way to resolve the political situation, and there was little appetite for another election before the end of the year. 

Questions to ask yourself... Will a Conservative-DUP deal stabilise the markets? What will renew business confidence?

2. Who is the DUP?

With the Conservatives falling eight seats short of the 326 seats needed for an overall majority, the ten seats won by the Democratic Unionist Party (DUP) have become very important to the balance of power. After being burnt burned last time, the Liberal Democrats have categorically ruled out going into an agreement with the Conservatives, so May has reached out to the DUP for a ‘confidence and supply’ deal – not a formal coalition, but an agreement they would vote for Conservative policy in the House of Commons.

Formed by Rev Ian Paisley in 1971, the unionist party from Northern Ireland are pro-Brexit and socially conservative. In recent years, they have aimed to block more liberal abortion laws as well as same-sex gay marriage. There are a number of key political figures in the UK unhappy about the potential agreement, and some in the Conservative party have expressed their distaste for the deal. 

Another issue surrounding the possible partnership is cohesion within Northern Ireland. The Northern Ireland Assembly is currently suspended after the republican party Sinn Fein pulled out of the power-sharing agreement earlier this year. If the DUP were to have significantly more power than Sinn Fein due to the deal with the Conservatives, it could make negotiating a new power-sharing agreement near impossible.

Question to ask yourself... Should the Conservatives work with the DUP?

3. Was it really a Labour victory?

The early hours of Friday morning were summed up by the smiles and high-fives in the Corbyn camp, as they defied the polls and gained 32 seats, as well as preventing an overall majority for the Conservatives. Many high profile Labour figures who had spoken out against Corbyn before the election moved to offer him their support, as Corbyn claimed victory. However, not everyone is convinced.

Labour MP Chris Leslie, speaking on BBC Radio 4, points out that it’s a good result, but not a “famous victory” for the party. Talking about the campaigns, he suggested there had never been a more beatable PM as May and Labour had an “open goal”. Even though the Corbyn campaign was significantly better than that of the Conservatives, they finished second in terms of seats and there could be another five year of Conservative rule.

Question to ask yourself... Can Corbyn go onto win an election as Labour leader?

4. Brexit

Theresa May called the election with the aim of bolstering her position ahead of Brexit negotiations, which are set to start next week. Without a majority, this most certainly isn’t the case and she faces fresh challenges to her desires for a hard Brexit. The City has renewed hope for a softer Brexit and were encouraged by May’s cabinet picks – prominent remain backers were given roles, including Damian Green and David Lidington. Without a majority, May needs strong backing from all parts of the Conservative Party, whether they are Remainers or Leavers. Here are four groups of people who could influence her to a softer Brexit.

The DUP – as discussed before, the DUP could hold the balance of power. If that’s the case, they are likely to push for a soft border with Ireland to be part of the negotiation.

The Scottish Conservatives – Leader of the Scottish Conservatives Ruth Davidson has run an incredible campaign, winning ten seats from nowhere for the Tories. These MPs are likely to push for a softer Brexit and May can’t afford to lose their support.

Business leaders – The City is ready to push harder for a soft Brexit. Without a strong majority, May cannot ignore these external influences. She needs big business on side to maintain the Conservatives’ support base.

Young people – The young really turned out to vote in this election and approximately 68% of them supported Labour. The Conservatives can no longer afford to rely on the older vote to win elections, therefore the highly pro-remain youth are likely to be a bigger factor in the way Brexit is negotiated.

Questions to ask yourself... How likely is a soft Brexit? Is Theresa May the best person to negotiate the Brexit deal?

5. Can May survive?

One thing is almost certain - Theresa May’s days as Conservative leader are numbered. After what many have described as a disastrous election campaign, the party will not back her in fighting another general election. Even looking at the much shorter term, May’s position is looking extremely fragile. A survey has found two-thirds of Conservative Party members want May to resign and her two closest advisors have already resigned over the weekend. Prominent Conservative frontbenchers are publically backing the PM for now, but many believe Boris Johnson is about to launch a leadership bid – the bookies have him as firm favourite to be the next Conservative leader.

The Queen’s speech next Monday will be telling and will define whether Theresa May can continue her premiership. The Queen will set out what the new government plans to achieve, for it to be debated and voted on in Parliament. Jeremy Corbyn has already committed to challenging this and if May is unable to steer it through the House of Commons, her options become extremely limited. With the Brexit negotiations just around the corner, May is trying to position herself as the person to get the best deal for the UK. However, her reputation has suffered after calling an election she didn’t need to and running such a poor campaign. There is every chance she’ll be gone by the end of the year and the public will be heading back to the polls.   

Question to ask yourself... Should Theresa May resign her position?

6. And finally… The most diverse Parliament ever

Despite a bitter campaign and a result that is causing uncertainty, there was a lot of good that came out of this election. There was strong youth engagement with politics and the House of Commons has become more diverse than ever before. Traditionally seen as a privately educated male-dominated elite, now over half of MPs were educated at comprehensive schools. Plus, for the first time ever, over 200 MPs are female. There was a 40% increase in MPs from the LGBT community compared to the 2015 election and a 27% increase from ethnic minorities. While it isn’t fully representative of the UK population and shows that work still needs to be done, it’s certainly a positive step in the right direction.  

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