UK: On a path of a highly unpredictable election – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, points out that the UK will go to the polls on 12 December in what could yet prove to be a highly unpredictable election.

Key Quotes

“The Conservative Party currently enjoys a 10-15 point lead in opinion polls over the nearest rival, the Labour Party. However, the party enjoyed a similar lead over Labour in the period leading up to the 2017 election, and this proved disastrous for the Conservatives, with the party losing its majority in parliament.”

“The coming election’s predictability is further complicated by the UK’s first-past-the-post electoral system – a ‘winner takes all’ system where parties can win seats with a minority of the vote share in a given constituency, so long as they have the most votes. This did not pose problems when elections in the UK were two-horse races between right/left, Conservatives/Labour. However, the Liberal Democrats (pro-remain) and Brexit Party (pro-no deal Brexit) have both attracted voters from the main parties, and so extrapolating national polling to the constituency level could yield misleading predictions of the actual outcome.”

“With that said, of the likely scenarios – a Conservative majority, or another hung parliament (similar to now) – all lead to relatively benign outcomes for financial markets. The Conservatives are campaigning on the basis of their deal (whereas the risk before was that they would campaign for a no-deal Brexit), and another hung parliament would likely lead to another referendum pitting PM Johnson’s deal (or some soft Brexit variant) against Remain. In any case, the risk of a no-deal, disorderly Brexit is substantially lower than it was previously.”