Just under a year ago we woke to the seismic shock of the EU referendum. Last night we felt some of the aftershock as Theresa May failed to win an overall majority in the election. It is clear that the Conservatives are short of an overall majority. We face a continuing period of uncertainty. At Grant Thornton we advise our clients to think about strategies for a VUCA world – volatile, uncertain, complex and ambiguous. That remains the mind-set with which dynamic businesses and other organisations will navigate the coming months.
Theresa May should make a statement soon about her approach. It is not for me to comment on what she should do. What businesses will want today is some clarity on process: will the Conservatives lead a minority government and what is the process for the coming months.
The result does raise the possibility of a further Conservative party leadership election and another general election in the autumn. We will get a better idea later today.
Clearly as well as political uncertainty, we will see volatility in markets – we have seen a fall in the pound and we can expect further volatility in markets today and over the coming weeks. This is not a result the markets priced for.
The result will affect progress on Brexit negotiations, with the start of negotiations with the EU pencilled in for 19 June. A minority government makes Brexit very difficult to navigate. It is hard to predict whether this result makes a hard or soft Brexit more likely. The assumption until last night was that a larger majority for Theresa May would make it easier for her to agree compromises in negotiations and negotiate a smooth transition. A minority conservative government could face greater backbench pressure for a ‘harder’ approach to Brexit negotiations. Equally, the result may be interpreted as a rejection of 'no deal is better than a bad deal'. Again, this makes uncertainty the watchword for now.
The other event pencilled in for 19 June is the Queen’s Speech – the state opening of Parliament and the government’s new legislative programme. Normally this would set out legislation to implement the manifesto. Given the Conservative manifesto was one so associated with Theresa May and her advisers it is questionable how much of it will feature in the Queens Speech – and the Queens Speech itself could possibly be delayed. We can expect the government to set out legislation required for Brexit: the EU ‘Great Repeal Bill’ (transferring EU legislation into UK law to enable Brexit), an immigration bill and customs bill. However, some of the manifesto reforms most closely associated with the prime Minister may not feature, such as proposals for corporate governance reform.
The only certainty we have for now is a period of uncertainty. That doesn't mean that we should stop and wait for the politicians. What we can do is get on with making whatever difference we can to the economy and society. More than ever it is the responsibility of all in the UK - private, public, third sector and communities - to work together, and with government, to shape a vibrant economy.