Many of us were caught on the backfoot this week when the British Prime Minister Theresa May announced on the steps of 10 Downing Street that she wanted to hold a general election on the 8th June.
For starters, the introduction of the Fixed Term Parliament Act back in 2011 should have eliminated the possibility of prime ministers picking and choosing when to hold such elections – the idea behind the legislation was that all parliaments will last for five years before the country is again called to vote. In reality, relying on opposition parties to not vote in favor of sending the nation to the polls early has always rendered the act something of a waste of time.
Politically, it makes sense for Mrs May to call an election now. She only enjoys a small working majority in the House of Commons and her back benchers have not been particularly helpful of late. With a huge lead in the opinion polls and the Labour party in perhaps the most chaotic shape in its history, the prospects of a comprehensive win are good, and that will make it much easier for her to pursue her own agenda – including Brexit.
But what does an election campaign mean for investors? How should they react?
If there’s one thing markets don’t like, it is uncertainty. And while the signs point towards a big win for the Conservatives, the fact is that the signs have been a bit off in political campaigns in recent years – a hung parliament was expected in the 2015 general election, the UK was predicted to vote to remain in the EU, and Donald Trump was not expected to make it to the White House.
As Richard Stone, chief executive of the Share Centre, said: “Political campaigns and elections can be unpredictable, as the last couple of years have demonstrated time and again. Newsflow and events can ultimately drive markets and any sense of uncertainty or doubt over the election outcome could heighten that volatility markedly.”