UK election 2017: Why the hung parliament spells trouble for its economy

Theresa May’s snap election wager has backfired. The supposed “Brexit election” was intended to signal the public’s support for the prime minister’s approach to the UK’s departure from the European Union. Instead, it has left her incredibly weak, without even a majority in government and her future as leader uncertain. And the economic data reflects this.

Markets hate uncertainty. One measure that tracks this is the UK’s index of Economic Policy Uncertainty, which shows diminishing confidence around the country’s economic resilience. It is calculated by tracking daily articles relating to economic and political unrest in more than 650 newspapers in the UK. The higher the number, the more turbulent the economic outlook. The index surged from 286 on May 18, 2017 to a staggering peak of 521 on June 8 2017, the day of the general election.

This is significant because higher levels of uncertainty are associated with greater stock price volatility and reduced investment and employment in key areas of the economy like healthcare and infrastructure.

The UK’s rising uncertainty levels stretch back to its EU referendum on June 23, 2016. Since then, GDP growth increased by only 0.84% while inflation rose by 1.09%. Uncertainty around the UK’s future relationship with the EU and the Brexit negotiations has caused sharp movements in currency markets as a result of investors hedging their bets and speculating on trades. The day after the referendum, the euro to sterling exchange rate fell by a massive 6.2% overnight, while economic policy uncertainty hit a record value of 2,661. It fell a further 5.1% from June 2016 to May 2017 and 3.42% during the month of May 2017, alone.

The next graph shows the daily linkages between the euro to sterling exchange rate changes and economic policy uncertainty since May triggered Article 50 on March 29, 2017. A negative value implies that as the uncertainty index increases, the sterling to euro exchange rate tends to fall.
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Where it all went wrong for Theresa May

When British prime minister Theresa May called a snap general election ahead of Brexit negotiations, it caught almost everyone by surprise. The expectation was that her Conservative party would gain a larger majority,supposedly in order to prevent opposition to any Brexit deal.

However, many suspected it was simply because the polling figures were irresistible. The Tories were far ahead in virtually every opinion poll and anticipated a parliamentary majority of between 80 and 100 if they went to the polls immediately.

As a prime minister without her own general election victory, May clearly hoped that her “hard Brexit” rhetoric would buy her plenty of votes from UKIP, strengthening her grip on Downing Street. However, the past eight weeks have been a disaster for her. She now finds herself the leader of a minority government, with Brexit negotiations due to start in less than two weeks.

A campaign crumbles
The campaign started well for the Conservatives. The expectation was that they would crush Jeremy Corbyn’s opposition. His Labour party was divided on key issues and suffering low poll ratings.

But a leak of the Labour manifesto should have been an early warning for May. With extra funding for the NHS, schools and public sector pay, the document appealed to those exasperated with austerity. As Corbyn began to be more exposed to the public at election rallies and television debates, voters also began to warm to him.

Conversely, the Conservative manifesto launch was shambolic. One of the key pledges was being undermined within 24 hours of publication. The manifesto pledge on social care, nicknamed the dementia tax by its critics, was concerning for many older voters. Coupled with a removal of the triple lock on pensions, the “grey” vote, which the Conservatives have relied upon in recent years, began to look less certain. Concerns were also raised over a more peripheral issue – fox hunting. While not a key issue for many, fox hunting certainly raises temperatures among some voters, and May’s pledge to hold another vote on the issue irritated some.
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From shouting it out to staying at home: a brief history of UK elctions

Most of the voters who had cast their ballots in the general election on Thursday June 8, would have taken their right to do so for granted, unaware of the contested history of this now familiar action. It’s actually less than 100 years since all adult males in the UK were awarded the franchise for parliamentary elections, in 1918, in the wake of World War I. That right wasn’t extended to all adult women for a further ten years after that.

Even today, it might be argued, the democratic principle of “one person, one vote” has not been fully implemented, since the royal family and members of the House of Lords are not allowed to vote in parliamentary elections. And even after the mass enfranchisement of the early 20th century, university graduates and owners of businesses retained a double vote, the former in their university constituencies as well as where they lived. These privileges were only abolished in 1948, in face of overwhelming Conservative opposition.

How Britain votes today is also a relatively late development in electoral history. Until 1872, parliamentary electors cast their votes orally, sometimes in front of a crowd, and these choices were then published in a poll book. Public voting was often a festive, even riotous affair. Problems of intimidation were widespread, and sanctions might be applied by landlords and employers if voters failed to follow their wishes, though this was widely accepted at the time as the “natural” state of affairs.

Open voting even had its defenders, notably the political radical John Stuart Mill, who regarded it as a manly mark of independence.

But as the franchise was partially extended in the 19th century, the campaign for secrecy grew. The method that was eventually adopted was borrowed from Australia, where the use of polling booths and uniform ballot papers marked with an “X” was pioneered in the 1850s.

More recent reforms took place in 1969, when the voting age was lowered from 21 to 18. Party emblems were also allowed on the ballot paper for the first time that year. It’s this kind of paper that will be used on June 8.
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