British Prime Minister sets her sights on new elections

Great Britain’s Prime Minister May has once again demonstrated that she does not shy away from political risks. In a somewhat surprising move, she has now announced her aim to hold new elections at the beginning of June – a step she had ruled out only a few weeks earlier. May justified her call for an election by referring to the political division within the country. In the Prime Minister’s words, „the country is coming together, but Westminster is not“. This division endangers the possibility of a successful outcome to the country’s exit from the European Union. May needs a two-thirds majority in parliament if new elections are to be prematurely called. She should achieve this. Her proposal has already met with the consent of the Labour Party, the biggest opposition party, as well as the Liberals.

It is difficult, however, to really comprehend the opposition’s reaction. According to the latest opinion polls, the Conservatives are in the lead with 46% of the votes, with Labour likely to gain only just 25%, and the Liberals 11%, of the votes. Given the country’s majority voting system in particular, the chances of May & Co. coming away with a huge victory are good. Furthermore, there is broad consent among the British public for the Prime Minister herself and her Brexit course. Theresa May would in all likelihood view such a success as confirmation for her Brexit strategy and continue the hard line towards the European Union she has taken in past weeks. Talks between Brussels and London will certainly not become any easier as a result of this.

Nonetheless, the response of the British pound to the Prime Minister’s words has been quite positive. Either currency market participants view the success prospects of the opposition in the forthcoming election, with its generally EU-benign course, in a better light than the current opinion polls or – in line with May’s words – they consider the possibility of a good ‚deal‘ from Great Britain’s perspective, in the form of a strong mandate for the Prime Minister, to be strengthened. Yet one important point appears to have receded to the background of attention. It takes two to negotiate, and the ratio of representation in the British parliament is of virtually no consequence for the European Union and its negotiating position. What is clear is that the British currency will likely come under pressure if the negotiations prove difficult. Nothing has changed in this respect. Furthermore, the country’s economy has also recently shown signs of deceleration in some areas, another point likely to give the pound a bumpy ride in the months ahead.

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