The report “Countdown to Brexit: Will a Christmas Election Deliver Clarity?” holds that the 12 December election will likely be viewed as an unofficial vote on the outcome of Brexit.
A hard Brexit would be more likely under Boris Johnson’s Conservative Party. If Mr Johnson wins an overall majority, he can push his vision through parliament or use his strengthened position to negotiate a better deal with Brussels.
Of the two outcomes, the prospect of a wild card Labour majority government is weighing more on the minds of investors. A Corbyn government would pursue aggressively loose fiscal policies to fund its spending projects, forcing the Bank of England to raise rates in order to combat inflation.
“Concern over the long‑term sustainability of a Corbyn government’s fiscal plans would very likely keep sterling in check for an extended period, while the prospect of nationalisation would cause considerable dislocation in stock markets, particularly in utilities and financials,” the report reads.
Under Corbyn the potential economic difficulties of hard or no-deal Brexits would likely be averted, but investors may prefer the devil they know.
A Conservative majority government would likely be welcomed for what it wouldn’t do – raise taxes and nationalise industries. This could boost stocks, particularly in the utilities that Corbyn is interested in re-nationalising. However, the outlook would remain subdued on the heightened probability of a hard Brexit. T. Rowe Price estimates the possibility of a Conservative majority government as 50 per cent.
Of course, there’s also option three: A Conservative-led Coalition government that maintains the current status quo. Under this eventuality, the possibility of Mr Johnson getting his vision for Brexit through parliament becomes less certain. If Mr Johnson fails, that could mean another referendum on the matter, leading to even more uncertainty about its outcome when many UK citizens have expressed reservations about the increasingly fraught process.
This election will be touch and go, with a high possibility of surprise outcomes due to many MPs stepping down and widespread tactical voting.
Whatever happens, the UK is set to leave the European Union on 31 January 2020 – and if nothing is agreed by the deadline, the UK may face a potential no-deal Brexit that could leave its economy in shambles.
