- May announced a general election for 8 June, despite having previously ruled out calling one early.
- The Commons approved it the next day by 522 votes to 13, far above the two-thirds needed.
- For companies with business in the UK, the prudent course is to keep several scenarios open and not decide on a headline.
On 18 April 2017, barely three weeks after formally triggering the exit from the European Union, British Prime Minister Theresa May announced she was calling a general election for 8 June, about three years earlier than planned. She had ruled out that possibility several times. She argued that she needed a clear mandate at the polls to negotiate Brexit with a country and a Parliament united behind the government.
To bring forward an election, British law requires the support of two-thirds of the members of the House of Commons. On 19 April the House voted in favour by 522 votes to 13, so the call became firm. The pound rose sharply after the announcement: according to analysts, a government with a larger majority would have more room to negotiate the exit.
How the call works
Since 2011 a law has set five-year terms for the British Parliament, so the next election was due in 2020. It can only be brought forward if two-thirds of MPs approve it or if the government loses a confidence vote. Elections are held in 650 constituencies and the party that wins a majority of 326 seats governs, even without a majority of the votes.
The Conservative Party had governed with a majority of just twelve seats since 2015, which made it hard to pass controversial legislation. Calling an election is a gamble: it can strengthen the government’s position or, if the result is not as hoped, weaken it. A campaign of about seven weeks also introduces a period of political uncertainty at an especially delicate moment. Each party’s Brexit programme will therefore be something worth following closely.
Brexit in the meantime
The letter by which the United Kingdom formally notified its intention to leave, sent on 29 March, opened a two-year negotiating period that in principle ends in March 2019. That clock does not stop for an election. The other twenty-seven member states planned to meet on 29 April to set their negotiating guidelines, whatever the British ballot boxes decided.
For companies, the effect is twofold. On one hand, the campaign may delay political decisions on specific aspects of the future relationship. On the other, the result will shape the tone of the negotiation and, with it, the likelihood of a broader or narrower agreement. Neither can be predicted with certainty, and opinion polls are no guarantee. Recent experience, in the United Kingdom and elsewhere, shows that polls can get it wrong.
What to review
Anyone selling or buying in the United Kingdom can use these weeks to review their exposure to the pound and the terms of their contracts: invoicing currency, price-revision clauses and the consequences of legal or customs changes. With a more volatile pound, it pays to decide in advance how currency risk is managed, rather than reacting to every move.
Nor is it necessary to take irreversible decisions before 8 June. It is reasonable to keep business running as normal, prepare scenarios and consult the adviser on how one result or another would affect costs, timing and planning. This is general information and not investment advice: each situation has its own circumstances. What matters is not to depend on a single outcome for the business to remain viable.
Facing an election with an open result, the sensible course is to prepare scenarios and not bet on just one.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
