Just weeks after ruling out a general election before 2020, the Conservative government revealed the country will take to the polls again this summer.
The announcement was met with a muted reaction in markets, with sterling bouncing back after an initial short sell-off and the FTSE 100 levelling out after an initial fall to 7,211 just after 12pm on Tuesday.
While the short-term outlook seemed choppier, asset managers said the election would give investors more certainty over the long-term, with few questioning May’s ability to increase her majority and solidify her mandate to lead the UK.
The muted reaction in sterling, gilts and UK equities suggested markets had been “savouring the possibility of much-needed clarity” on how the government would look as it approached Brexit negotiations according to UBS Wealth Management’s Dean Turner.
He said: “If the general election is held, we believe it is highly likely the Conservatives will increase their majority and firm up the future direction of government policy, particularly in regard to Brexit.
“The prime minister has been softening her rhetoric on Brexit in recent weeks and we expect her to use this election to secure a mandate for future direction of the talks.
“Although disruption to the UK economy in the short-term is still likely, we believe that the longer-term outlook is brighter.”
Aberdeen Asset Management’s fixed income investment manager Luke Bartholomew said: “The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit.
“That would be welcomed by financial markets.”
