UK Prime Minister May Calls General Election
In an unscheduled announcement on Tuesday, Prime Minister May has called for a General Election for June 8th.
The Prime Minister is looking to increase her parliamentary majority as the EU exit negotiations gather pace. If May can secure a stronger majority within the House of Commons, it would put her in a much stronger position, especially as it would lessen the risk of rebels within her own party disrupting the negotiations and weakening the government’s negotiating stance.
Following changes made following the 2010 election, there was a change in the UK constitution to introduce fixed-term parliaments of five years. Previously, the Prime Minister had the power to call an election at any time but, following the changes, there now needs to be agreement to dissolve parliament ahead of time.
The Prime Minister will need to secure the backing of two-thirds of the members of parliament in Wednesday’s vote in order to secure agreement for an election.
If this backing is not forthcoming, the election will be blocked in the very short term, although there would be other ways to secure an election and there would probably be only a small delay.
Sterling dipped sharply lower on the announcement of the statement with some speculation that the May could announce her resignation due to ill-health. GBP/USD retreated to lows near 1.2520 from 1.2590 with EUR/GBP moving above 0.8500.
The UK currency recovered ground following the actual announcement, primarily due to relief that it was not a health issue. GBP/USD moved to daily highs above 1.2600 with EUR/GBP dipping below 0.8450.
A stronger majority for the government would probably be seen as a positive factor for Sterling as it would strengthen the UK negotiating position and possibly reduce the support for the Scottish National Party.
There will, however, inevitably be increased volatility across all asset classes with choppy trading in Sterling. There will be some speculation that May would change her position on the EU exit if she secures a fresh mandate. The holding of an election will also tend to delay EU negotiations which could have an unsettling impact on concerns that it will be even more difficult to reach agreement within the two-year timetable.
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