How will the UK election result affect Brexit trade talks?

Industry News | | MIC Customs Solutions |

The surprise outcome of the recent UK general election could have a number of implications for the ongoing Brexit talks, which could significantly impact future trading terms between Britain and the rest of Europe.

As the world's fifth-largest economy, a general election in the UK is always a matter of international interest - but even so, there have been few national elections in recent memory of as much immediate and far-reaching consequence for global trade as the one held in Britain on June 8th 2017.

Hastily scheduled in a surprise decision by prime minister Theresa May against a backdrop of looming Brexit negotiations, the election had been intended to help Mrs May strengthen her slim parliamentary majority, and empower her to push ahead with a strategy that would take the UK out of the European Union on her government's terms.

Instead, the vote resulted in a hung parliament, throwing the country into political uncertainty only days before the start of Brexit discussions with the European Commission. Although Mrs May has been able to tentatively stabilize her regime since then, the fallout of the election continues to loom large - with potentially significant consequences for the country's bargaining position in future trade talks.

British voters defy expectations again

After defying analysts' predictions with their vote to leave the EU last year, the June 2017 vote saw the British electorate once again deliver a shock result that confounded widespread expectations that Mrs May would achieve a substantial majority.

Indeed, the prime minister had made the decision to call the election - which otherwise would not have taken place until 2020 - due to the strong lead the Conservatives had held over the opposing Labour Party in opinion polls. Her stated aim was to ensure she was able to lead a "strong and stable" government into the Brexit talks, and to obtain a clear mandate to pursue her own negotiating agenda.

However, the result has instead left her dependent on striking a deal with Northern Ireland's Democratic Unionist Party (DUP) to prop up what would otherwise be a minority Conservative government, weakening her personal authority considerably.

A greater chance of a soft Brexit?

Although Mrs May's Conservatives retained the largest share of the vote during the election, the gulf between the intended and actual outcomes of the election have been interpreted by commentators as a rejection of the party's stated agenda - which could make it less likely that the government will continue to pursue a "hard Brexit" policy.

Mrs May had previously stated that her government would seek to leave the European single market and customs union post-Brexit, in order to give the UK the ability to develop its own trade deals and policies on the movement of goods and people. However, the loss of the Conservative majority means that it will now be much more difficult to do so without cross-party support.

Given that significant factions within both the Conservative and Labour parties favor a maintenance of existing trade and customs agreements with the EU where possible, this could force the prime minister and her negotiating team to adopt a more conciliatory approach than was previously the case.

The continued risk of "no deal"

Throughout her premiership, Mrs May has reiterated her belief that "no deal is better than a bad deal" - suggesting that she would be willing to allow the two-year countdown to Brexit to run out without any new trade agreement in place, rather than accepting terms she was not happy with.

This would result in UK-EU trade reverting to standard World Trade Organization tariffs, meaning a significant increase in operational costs for businesses. It is an outcome that has been opposed by British business groups such as the CBI, and by the majority of Mrs May's political rivals - but it remains a real possibility.

Although the increased need for cross-party agreement on Brexit may make it less likely that the UK will be prepared to use the threat of "no deal" as a planned strategy, the loss of the Conservative majority may interfere with decision-making processes, preventing a timely agreement from being struck with the EU and resulting in Britain exiting the bloc without a deal in place regardless of intent.

This prospect would become even more likely if Mrs May's weakened government were to collapse as a result of in-fighting or a failure to secure DUP support on key issues, which would potentially lead to another general election being held later this year - a process that would further eat into the limited amount of time the UK has to secure a new trade deal.

As such, organizations with business interests in the UK and EU are likely to continue monitoring the shifting British political landscape with great interest, looking for the reliable indicators of future outcomes that the June election so resolutely failed to provide.