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Analisi 12.06.2017

UK elections - Political challenges continue

UK elections - Political challenges continue

The disappointing outcome for UK Prime Minister Theresa May’s Conservative Party suggests a fragile political backdrop as the British government enters negotiations about its exit from the European Union.


We expect a weak British pound to shoulder much of the policy burden in cushioning the UK economy from Brexit.

UK fixed-income investors should be cautious, given low real yields and tight corporate spreads. Although sterling-referenced equity investors may benefit from globally-exposed, large-cap UK equities, we continue to prefer continental European equities to their UK counterparts.

Key points

  • Even in coalition with the Democratic Unionist Party (DUP), the standing of the Conservative Party in Brexit negotiations will be challenged
  • We expect sterling to shoulder a disproportionate share of the burden in helping the UK economy adjust to a post-Brexit world
  • Low real interest rates and tight spreads suggest modest fixed-income returns for UK fixed-income investors
  • Alhough UK equity investors should benefit from globally oriented, large-cap exposures, we continue to prefer continental European equities to UK corporates

With only one seat left to declare in the UK general election, it has been confirmed that Theresa May’s Conservative Party has lost its parliamentary majority. While a coalition with the Democratic Unionist Party (DUP) would be enough to keep the Conservatives in power, the apparent outcome of Thursday’s election serves to weaken rather than strengthen the negotiating position of the UK government as they enter into Brexit talks with the European Union. Indeed, the chance of uncertain support from her own party, combined with the potential for a weak and unstable coalition, leaves open the prospect that the UK will be spending a sizeable part of the first year of Brexit negotiations in a state of political limbo.


LOK Michael.jpg

Michaël Lok
Group CIO and Co-CEO Asset Management

Norman Villamin-1.jpg

Norman Villamin
CIO Private Banking

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Patrice Gautry 
Chief Economist

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