UK election result to ‘add pressure to Irish exporters’
Conservative victory was best case scenario for most, says State Street
Traders work on the trading floor of ETX Capital in London on June 9th as markets open the day after Britain held a general election, in which the ruling Conservatives lost their parliamentary majority. (Photograph: AFP Photo)
The UK election result “will add pressure to Irish exporters to the UK following just 2.4 per cent export growth in 2016, the worst performance in four years”, Davy stockbrokers said in a client note Friday. Davy analyst Conall Mac Coille wrote that “consumer and investor confidence in the UK may falter” which could ultimately threaten “a deeper slowdown”.
Goodbody chief economist, Dermot O’Leary, painted a similar picture. He said “the outcome certainly results in an even weaker negotiating position for the UK”.
“While the impact of political uncertainty on the economy can be overstated in the short-term, it is hardly an environment that is conducive to ongoing business investment and consumer spending”, he added.
The analysis from State Street Global, a financial services company, was similar. It said markets were “poorly prepared” for the surprise UK election result and “an outright Conservative victory was still the best case scenario for most”.As the price of Sterling fell against both the euro and the US dollar, Bill Street, also of State Street, said: “this initial Sterling weakness is no surprise and is likely to continue as international investors demand a higher risk premium. Sterling is already substantially undervalued against the dollar and euro, reflecting future uncertainties”.
In its note to clients, private bank Investec referred to the election result as “weak and unstable”. However, the bank said, “it would seem as though markets are relatively optimistic about the formation of a tory-led government”. It went on to note that if markets cease to be optimistic about a tory-led government, “sterling is vulnerable to a further sell-off”.
In a research note focusing on banking stocks, Goodbody analyst John Cronin said, “we see increased economic uncertainty as likely to drive some selling of UK bank stocks”. Commenting on Brexit prospects in the aftermath of the election, Mr Cronin said that the result “reduces the probability of a hard Brexit”.
AIB senior economist John Fahey wasn’t as sure about future Brexit prospects. He wrote that “the election adds further uncertainty in relation to Brexit”. Commenting on the market reaction to the result, he said the “fallout from the election has so far been largely confined to sterling”.