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Good News in UK Stalemate

Political paralysis isn't always a bad thing...

ALMOST ONE WEEK on from the general election, and we have a bit more clarity on what's happening next, writes John Stepek, editor of MoneyWeek magazine, in his Money Morning email.

Theresa May is forming a minority government with the support of Northern Ireland's Democratic Unionist party (DUP). Talks are continuing.

So we have a government. For now.

What about by the end of the week? What are the odds of Theresa May surviving? Too close to call.

Here's what we know right now.

Theresa May – on 318 seats, versus a necessary 326 seats (and 330 before the election), wants to work with the DUP, which has ten seats, to govern the UK. This is not a coalition. It's a minority Conservative Government, supported by the DUP. That's the plan.

On 27 June, MPs vote on the Queen's Speech – effectively whatever survives of the Tory manifesto. If she doesn't push that through, then she's in (more) trouble.

For now, May is hanging on to office. As far as I can see it, her best hope is that no one else will want the job. Having nearly lost, the Conservative Party will not be keen to risk another general election (it would be hard to change leader and not call another election).

On the other hand, she's messed up badly and her position is extremely precarious. Today, no one wants to have a go, because they're still processing the shock. Tomorrow, the more ambitious MPs might decide that they'll never get a better chance at taking the top job.

Also, London's local newspaper, the Evening Standard, is baying for her blood at every available opportunity, because it's now edited by George Osborne, who is clearly still feeling extremely bruised by whatever May did to him.

So I wouldn't yet feel comfortable about betting either way on May's longevity. And there's still a live possibility that we'll be facing another general election before too long.

There is an irony about all of this. Before the election, everyone was complaining about the danger of having such a dominant governing party, and such a weak opposition. "It's not healthy for democracy," we all said.

Well, that's not the case anymore. Now we've got all the democracy we can stand. The death of both the Labour Party and of two-party politics has been grossly exaggerated. The battleground may have changed somewhat – neither Tories nor Labour stand for what they did maybe ten years ago. But we're back to the old-fashioned, tribal, two-horse race.

Ukip is gone, having served its purpose. The LibDems have reclaimed their comfort zone as the party of mild protest – neither wiped out nor anywhere near close enough to gaining power to have to worry about what that might mean for their policies and their pristine consciences.

Even the SNP (which for one brief moment was seriously being viewed as the new opposition – remember that?) has been delivered a serious blow. It will have to find a broader raison d'être beyond independence if it wants to hang on to power, which is one reason why Nicola Sturgeon's position looks less secure than perhaps it should.

What does all of this mean for your money?

The short answer is: not much – yet.

The collapse of the threat of a second Scottish independence referendum is probably moderately good news for Scottish house prices, and a bit of a downer for prices in English towns within commuting distance of Edinburgh (they'll shed some of the "flight to safety and a more advantageous tax regime" premium).

And if the DUP manages to get more money pumped into Northern Ireland (where house prices fell harder and further than anywhere else in the UK), then maybe property there will get a bit of a boost too.

But beyond that, as far as Brexit goes, I'm not convinced that this changes things much. I've always thought that May was ramping up the potential for a "hard" Brexit in order to appease sections of her own party and to maintain the Ukip vote.

If she'd won big, she'd have been given a mandate to pursue whatever sort of Brexit she wanted, and I suspect that would have been a relatively "soft" one. But now that she's lost badly, the result will be similar.

At the end of the day, Britain wants to trade with the rest of Europe. It also wants more control over its borders. Neither of those things is non-negotiable – the only question is the price of the deal. None of that has changed.

However, one thing that I do wonder about is how this could affect future planning for businesses. As Iain Dey points out in The Sunday Times, the prospect of Brexit has forced British-based companies to do a lot of contingency planning.

Inevitably, in the process, they've learned that maybe Britain isn't the cheapest or best place to carry out some of their functions. So they may already be thinking that a move elsewhere could work well, Brexit or no Brexit.

Throw in the threat that there are some scenarios in which Britain could end up with a high-tax, pro-nationalisation government in power, and our appeal versus the likes of France, say, suddenly diminishes again.

Beyond that, the potential for legislative gridlock is probably not a terrible thing for markets. Given that both main parties have a faintly anti-business tone at the moment, an inability to pass ambitious legislation may not be a bad thing.

Equally, that could be good news for your personal finances. There have been a lot of ambitious reforms on that front in recent years. A bit of a bedding-in period could be useful.

Launched alongside the UK's highly popular The Week digest of global and national news in 2001, MoneyWeek magazine mixes a concise reading of the latest financial events with expert comment and investment ideas.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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