Business

How much uncertainty can business take?

Prime Minister, Theresa May Image copyright Getty Images

British business groups have given a mixed response to the Prime Minister's sudden call for a general election.

Some said it could give her a stronger mandate in Brexit talks with the EU, but others warned it would distract from other issues.

There was also concern it would spark further volatility on share and currency markets.

On the financial markets, the pound jumped on the news, but shares fell.

The FTSE 100 was down more than 2%, while sterling rose 1.2% against the dollar to $1.272.

Mike Amey, head of sterling portfolio management at Pimco, said Theresa May's decision was "not without risk", but that if an election went ahead the prime minister was likely to win, given her lead in the polls.

He also said the Conservatives were likely to increase their working majority in parliament.

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"[That] would give the government more room for manoeuvre during the Brexit negotiations, and make the government less exposed to the more right-wing factions within the party," he said.

"All else [being] equal that should lower the risk of a very disruptive Brexit as the government should be able to plot a less confrontational exit from the European Union."

Terry Scuoler, chief executive of the EEF manufacturers' organisation, said Mrs May's decision to seek a "clear mandate" was sensible after a year of "considerable uncertainty" for businesses.

He said the government had to act to avoid "hampering future investment" in the UK.

"We have significant negotiations to undertake with our partners in the rest of Europe and doing this with a fresh and stable mandate from the country can only provide greater certainty about the future direction of travel for policy."

Image copyright Empics
Image caption Caxton FX believes an election win for the Conservatives would strengthen the pound

But others suggested a fresh election could distract from Brexit talks and other pressing concerns.

Firms are currently grappling with a range of issues, including rising inflation and low productivity rates.

Adam Marshall, director general of the British Chambers of Commerce, said: "Firms will want to be reassured that the key challenges facing the economy will be front and centre throughout any election period."

Stephen Martin, director general of the Institute of Directors, added: "Businesses are having to get used to being buffeted by the changing winds of politics at the moment, and will just have to endure yet another campaign.

"While Brexit will inevitably dominate the campaign, there are also much wider questions that need to be addressed on the changing nature of business and work, automation and our ageing society," he added.

Market reaction

Dean Turner, economist at UBS Wealth Management, said financial markets were not "overly concerned by the prospect of a snap election".

"[This suggests the] markets are savouring the possibility of much-needed clarity around the government's Brexit negotiation stance," he said.

But Laith Khalaf, an analyst at Hargreaves Lansdown, said markets might "get a case of the jitters in the run up to elections".

"A snap election does potentially open the door to some market volatility in the coming months, though investors shouldn't let their investment decisions be dictated by swaying polls," he explained.

Rupert Lee-Browne, boss of the foreign exchange firm Caxton FX, said he expected to see "even greater volatility in the value of sterling" from now until June.

However, he added: "If Mrs May gets the election result she is seeking, it will enable sterling to strengthen because the government will have a much stronger negotiating position."

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