Belfast Telegraph

'Inconclusive election result could be unhelpful influence on economy'

Economists have been giving their verdicts on the shock election result.

:: Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The economy's resilience immediately after the Brexit vote last year suggests the link between political uncertainty and economic activity is not overwhelmingly strong.

"Still, the inconclusive election result will be an unhelpful influence at a time when quarter-on-quarter GDP growth already has dropped this year to 0.2%, the slowest rate in the G7.

"The chances of the MPC cutting interest rates again in response also are slim, given that inflation is above the 2% target and is on track to exceed 3% later this year."

:: Kallum Pickering, senior UK economist at Berenberg, said: "We do not expect a major impact on short-term UK demand growth. Household demand will probably not be affected much. However, amid the added uncertainty, business could tread more carefully than before when deciding on investment and hiring.

"The result is negative for UK asset markets, but not dramatically so. It is modestly negative for the sterling exchange rate but we do not expect a large impact beyond and initial knee-jerk reaction.

"This is not a repeat of the Brexit vote on June 23. Instead, the political uncertainty coming from the result is partly compensated by the small chance that Brexit may not happen and by the hope that UK may opt for a less hard Brexit."

:: Martin Beck, lead UK economist at Oxford Economics, said: "The prospect of a prolonged period of domestic political uncertainty risks weighing on economic activity, although the performance of the economy following the EU referendum suggests that the threat from this source shouldn't be overblown.

"But the political impasse the UK finds itself in does have major implications for Brexit. Another election would take a big chunk out of what is already a very tight timetable for Article 50 negotiations, meaning that the chances of the negotiations breaking down without a deal are now much higher.

"And there is no guarantee that a second election would be any more conclusive than the first, raising the chances of a prolonged period of political paralysis."

:: Aberdeen Asset Management chief economist Lucy O'Carroll said: "The muted response from financial markets so far reflects their sense of deja vu. After all, in the past 12 months they have also had to absorb the shocks of the EU referendum result and President Trump's election.

"That said, we could see a fair amount of volatility in the coming days and weeks unless Westminster's response to this surprise result is remarkably smooth, which is unlikely.

"History tells us that hung parliaments are not durable, let alone with Brexit looming large. A request to pause the Brexit negotiations may be one possibility, but it's not clear how that would work as there's no precedent. Either way, this result looks to strengthen Europe's hand in the negotiations."

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