The exit poll for the U.K. election is in, and from a market perspective it could hardly be any worse.
The ruling Conservative Party stands to lose its parliamentary majority, potentially triggering another political earthquake in the U.K. and fueling lots of uncertainty about the country’s future Brexit negotiations.
According to the exit poll out immediately after the voting stations closed, the Conservatives stand to win 314 seats, short of the 326 needed to secure a majority. The ruling party currently has 330 seats in parliament. Opposition Labour is predicted to snap up 266 seats, followed by the Scottish National Party at 34 and the Liberal Democrats at 14 seats.
That means the U.K. could be headed for a hung parliament, which analysts fear could slow and muddle the Brexit process.
“A hung parliament throws open all kind of doubts, uncertainty and indecision over the looming challenge of Brexit. We have the possibility of a coalition government and all that entails,” said Neil Wilson, senior market analyst at ETX Capital, in a note.
The final result is not expected until the early hours of Friday, U.K. time. The exit poll from 2015 also predicted a hung parliament, but the final result ended up giving the Conservatives an outright majority.
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Prime Minister Theresa May in April called the early election in a bid to consolidate power in parliament to allow her to smoothly push through her Brexit strategy and strengthen her hand in the divorce talks with Brussels. At the time, her party enjoyed almost historic high support in opinion polls, setting the Tories up for a landslide.
However, after a series of campaign missteps May’s lead over Labour narrowed significantly in recent weeks.
The pound GBPUSD, -1.9372% slid to a seven-week low at $1.2707 after the exit poll came out on fears a hung parliament will damage the Brexit talks.
“Trouble is, in eleven days’ time, the Brexit negotiations are due to commence. And with Theresa May having already triggered Article 50, meaning that the clock is ticking towards the U.K. leaving the EU at the end of March 2019 before calling what always looked to be a very reckless election,” said Grant Lewis, head of research at Daiwa Capital Markets.
“And with so much to negotiate between now and then, any time lost (having already lost seven weeks to the election campaign) will merely serve to raise the risk of ultimate failure for the talks,” he added.
However, there could be a silver lining for both the pound and the Brexit talks. Kallum Pickering, senior U.K. economist at Berenberg said a hung parliament could force a cross-party compromise, leading to a softer exit that could turn out to be positive in the long run.
“With the strong chance that parliament could not form a consensus on key issues, the decision may even be thrown back to the voters, either through a second referendum on Brexit or a repeat election,” he said.