By 4:00 am this morning, it was clear that Ms Theresa May had held on to her Maidenhead seat, but it seems the same may not be said about her position as leader of the Conservative Party.
Earlier in the evening, senior Conservative reacted to a joint BBC/Sky/ITV exit poll, which indicated that while the Tories would retain an overall majority, it would be short of an absolute majority. Britain was heading for a hung parliament.
At the time of her re-election, Labour were leading by 184 seats to the Conservative’s 170. But the results were still coming in. Most forecasters, however, gave the Conservatives a majority of between 12 and 24 seats. They will need more than 40 to lead the government.
What would a hung parliament mean? The worst-case scenario the parties are unable to form a government in which case another election will have to be called in August. Also, the markets get jittery over the uncertainty of what form the next government will take and who will end up as prime minister. There could be a run on sterling — it bolted when the exit polls were released, hitting its lowest level since April.
If Labour manages to form a majority government with the help of the Scottish National Party and the Liberal Democrats, then Mr Jeremy Corbyn will be prime minister. This is the man May said would be unable to handle the Brexit talks. The markets, however, may welcome someone who seeks common ground with the EU. Some commentators even go so far as to say Corbyn will call another EU “in or out” referendum.
Speaking to Reuters, private bank JP Morgan said the results needed to be “viewed through a Brexit prism” and that Corbyn’s softly-softly approach might actually be good for sterling. According to the Financial Times, the European Union’s position on the UK’s exit is unlikely to change but it will be concerned to know exactly with whom it will be negotiating, when, and on what terms.
The Telegraph quoted the East Asian Head of Global Markets Research at MUFG, an investment services company, who said that investors “shouldn’t only focus on sterling” but agreed that if sterling continued to fall it would have an “international impact”.
At seven o’clock this morning (SA time), Labour took Southampton, which made a hung parliament official. Clearly, Ms May’s election gamble has failed. She may have to step down as Tory leader. Her leadership style is already under fire. The Telegraph reported senior Conservatives saying her campaign was based on a “cult of personality” and “central control”, and was fraught with “fundamental strategic errors”. The Tories will be counting on an alliance with Northern Ireland’s Democratic Unionist Party (DUP) to form a government, but it is unlikely that many other party leaders will want to work with her.
These are uncertain times, and the best advice in the short-term would be to sit tight. If Corbyn forms a government, some bankers are saying it is likely there would be more borrowing “to fund economic stimulus” and that sterling would rally in the long-term. For now, it’s a matter of wait and see.