ETF Securities Research Blog

UK elections will be a proxy vote on Europe

Will certainty and stability be established through this snap election? Prime minister Theresa May’s hope is to build a popular mandate for better bargaining with Europe in the Brexit negotiations.

Despite recent Yougov polling suggesting that now only 18% of the population oppose Brexit, will this change now the public have been given another potential option to remain in Europe?

It is likely this election will be seen as a proxy vote on Europe, consequently we could see a group form from within the political parties whose key agenda is to revoke article 50 and remain in Europe. The greater clarity that the public now has regarding how poor a deal with Europe is likely may well sway voters to side with remain, alongside further resistant rhetoric from Europe in the run up to the elections. Voting was very tight in the referendum, and recent polling highlights a change of tune from many who voted to leave. A resurgence in the Liberal Democrats and the possibilities of a coalition government are possible.

In the coming months we will see how established political loyalties are, and in the short-term political maneuvering will exacerbate market volatility, and currencies will be where this will be played out. Trading in GBP/EUR has been volatile but the overall reaction has been positive so far, but its difficult to say at this point if its because of a potential stronger Tory mandate or that the probability of the UK remaining within the EU have just risen.