2017 General Election: How the City of London is reacting, and what the vote means for financial services, investors, M&A and Brexit negotiations

 
William Turvill
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Theresa May today called for a General Election to be held on 8 June (Source: Getty)

Theresa May’s call for a General Election this morning took many by surprise. Here, we will be bringing you reactions for the City: what does the vote mean for Brexit negotiations, mergers and acquisitions (M&A), business certainty, investor confidence?

Brexit negotiations

WPP chief executive Sir Martin Sorrell told City A.M. he was "surprised" by the announcement. He added:

Adds further uncertainty for a month or so, but depending on the decisiveness of the result may make things ultimately less uncertain! Maybe illustrates the difficulty of running both parties with strong factions.

Gavin Williams, a corporate partner at law firm Herbert Smith Freehills who co-leads the firm’s Brexit taskforce said:

It provokes yet more short-term uncertainty for the UK and the City but with the prospect of a much-clearer mandate – and thence a marginally-strengthened hand – for the government in the negotiations with the EU.

Read more: LIVE: Theresa May calls for a General Election on 8 June

Aberdeen Asset Management investment manager Luke Bartholomew added:

It will take investors some time to digest the effects of the election in the next few days. A big factor for them is whether the election will make a softer stance on the Brexit negotiations more likely.

The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit.

That would be welcomed by financial markets. There’s also a decent chance of some volatility now with imminent elections in both the UK and France.

Head of Brexit advisory at Pinsent Masons Guy Lougher:

The outcome could have a profound impact on negotiations and could signal a complete U-turn on Brexit. This will depend on who wins the election and whether they have a clear majority in Parliament.

If the Conservatives are not re-elected with a working majority in the Commons it raises the possibility that any Brexit may be closer to maintaining continuity with the EU or might even be reversed.

M&A: Deals "may well suffer pre-poll postponement syndrome"

HSF’s Gavin Williams:

Transactions may well suffer more pre-poll postponement syndrome. Markets are likely be highly volatile in Europe, with elections coming up in France, the UK and Germany between now and the autumn.

Jonathan Klonowski, M&A deal researcher at Mergermarket:

In the run up to the referendum last year the country saw a clear slowdown in M&A – especially in terms of inbound investment. Political uncertainty always gives dealmakers an extra hurdle or two to overcome before completing a deal and that is to be expected again here.

The difference between this year and last is that opinion polls are not nearly as tight.

Michel Driessen, EY’s transaction advisory services markets leader:

We are likely to see delays in transactions as companies digest the Prime Minister’s announcement. However, many of the imperatives to do deals, from slow growth to disruptive competition , go beyond currency moves and the economic cycle.

Ian Gordon, a banking analyst at Investec:

At the margin, elections (especially when unexpected) create uncertainty and the potential for transaction deferral etc.

Arguably such uncertainty can lead to increased trading/hedging activity, though I’d suggest that this is less certain.

As such, [there is] certainly some potential for Q2 2016 to be a little softer than previously anticipated.

Business: Our voice must be heard

Stephen Martin, director general of the Institute of Directors:

Businesses are having to get used to being buffeted by the changing winds of politics at the moment, and will just have to endure yet another campaign. This must be used as a chance to properly debate what leaving the EU means for the long-term future of the UK, including how we continue to bring in the skills employers need.

While Brexit will inevitably dominate the campaign, there are also much wider questions that need to be addressed on the changing nature of business and work, automation and our ageing society. These can’t be ignored in the run up to 8 June, and the business voice must be heard in this crucial discussion.

Adam Marshall, director general of the British Chambers of Commerce:

Many business communities will understandably be concerned that attention will inevitably shift from the economy and the intricacies of leaving the EU to a potential election campaign.

Firms will want to be reassured that the key challenges facing the economy will be front and centre throughout any election period.

CBI director-general Carolyn Fairbairn:

Distraction from the urgent priorities of seeking the best EU deal and improving UK productivity must be kept to a minimum…

It is essential to get the UK’s foundations right, from building a skills base for the next generation, to investing in infrastructure, energy and delivering a pro-enterprise tax environment.

As EU negotiations now get underway, firms are clear about the serious risks of failing to secure a deal and falling into World Trade Organisation rules. It is vital that negotiators secure some early wins and all parties should commit to working to ensure businesses can continue to trade easily with our EU neighbours, while seeking new opportunities around the world.

London First chief executive Jasmine Whitbread:

This is a real opportunity to debate and set the agenda for the UK, and for Brexit. Business is clear, now is the time for action – investing in transport and housing to create growth and in our young people to create the skills we so urgently need.

Read more: Theresa May calls for early General Election

Investors: prepare for volatility

Investment Association chief executive Chris Cummings:

As political parties draw up their plans to take to the country, our focus will be working with the next government to foster an environment which encourages more people to save for later life, a productive economy that generates long-term growth for the nation and returns for savers, and a blueprint that charts a global path for Britain to thrive post-Brexit.

Alastair George, chief strategist at Edison Investment Research:

From an investor’s perspective, the current lack of confidence in polls will create short-term market uncertainty. Recent political events show that the most likely outcome does not necessarily materialise and this election is poised to be a re-run of last year’s Brexit referendum.

We expect to see sterling tightly linked to the fortunes of the Conservative party in the polls.

Paul Sirani, chief market analyst at Xtrade:

Investors will sit on their hands while the door-knocking gets underway, and we’d expect to see dollar-backers profit. The price of gold and silver could also pick up, while the pound and euro remain plagued by political uncertainty.

Adrian Lowcock, investment director at Architas:

Given that the FTSE 100 is trading close to all-time highs and we are seeing an increase in geo-political uncertainty investors should prepare for increased volatility over the coming weeks and hold a diversified portfolio of equities and bonds as well as property and gold.

Having some cash set aside at times of uncertainty will give investors the flexibility to act as more information becomes known.

M&G multi-asset manager Steven Andrew:

As always, we remain focussed on the things we can know rather than the things we cannot. Appraising the UK investment landscape in this context suggests to us that equity assets remain attractively priced – especially in the context of a robust UK and strengthening global economy. With that in mind, we would look to add to our UK equity positions should political-inspired volatility offer material discounts from here.

Hargreaves Lansdown senior analyst Laith Khalaf:

A snap election does potentially open the door to some market volatility in the coming months, though investors shouldn’t let their investment decisions be dictated by swaying polls. The household saving ratio is currently at its lowest level since the 1960s, and the big risk investors face from an election is that they let it disrupt their financial plans.

In the short term market sentiment can be driven by political events, but investors should look beyond any noise as politicians hit the campaign trail, and keep focused on their own long term savings goals.

UBS Wealth Management economist Dean Turner:

The Prime Minister has been softening her rhetoric on Brexit in recent weeks and we expect her to use this election to secure a mandate for future direction of the talks.

Although disruption to the UK economy in the short-term is still likely, we believe that the longer-term outlook is brighter.

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