Despite expectations of a narrow Conservative majority, or even a hung Parliament, in the few days before the General Election, the Conservative Party confounded these expectations by gaining a huge majority of 80.
As soon as the exit poll was released the Pound surged in value, and both the FTSE 100 and the more domestically-focused FTSE 250 rose strongly during the following day.
The reason for these reactions from financial markets is broadly twofold:
1) Jeremy Corbyn’s Labour Party was planning significant and far reaching changes to the economy, many of which were seen as being detrimental to business. The removal of this uncertainty saw a rally in many UK stocks, particularly those which the Labour Party was planning to nationalise.
2) The result means the era of paralysis within a hung Parliament has likely come to an end, and financial markets can at least have some certainty about the direction the government is going in, particularly in terms of Brexit.
However, the election result does not remove all Brexit uncertainty and many significant policy decisions are still to be made.
The government must now decide exactly what it wants to achieve in the trade negotiations with the EU, which will begin after the UK has officially left the bloc. Many experts have warned that a comprehensive free trade deal cannot be completed before Boris Johnson’s self-imposed deadline.
On news that the Prime Minister wants to make it illegal for the ‘transition period’ to be extended beyond 2020, the Pound fell in value and UK stocks gave up some of their recent gains. This serves as a reminder that UK assets may still remain volatile.