June 12, 2017—On June 8th, the UK held general elections. The ruling Conservatives won more seats in the House of Commons than any other party, but fell short of retaining their governing majority. As a result, the Conservatives had to join up with a small regional northern Irish political party to form a coalition government. Conservative Party leader Theresa May will continue as Prime Minister—at least for now.

  • Brexit was the principal issue in the general election. Prime Minister May had called the elections in order to strengthen her negotiating mandate with respect to upcoming Brexit negotiations with the EU. Her failure to achieve a strengthened mandate is an echo of the failure of her predecessor, David Cameron, to secure a “Remain” vote in the Brexit referendum.
  • The good showing by Labour and the Liberal Democrats suggests that there is a shift in popular views toward the Brexit negotiations. Both opposition parties favor a greater willingness by UK negotiators to engage in give-and-take with EU negotiators. 
  • Nevertheless, it is the Conservatives who, with the support of like-minded Democratic Unionists, will continue in power. The Conservatives will no doubt take note of the shift in sentiment, and perhaps be willing to modify some hardline Brexit positions. However, we do not believe the government will bend on core issues such as UK control over immigration and justice. Because the EU has already signaled it is not likely to accept UK terms on immigration and justice, the prospects of a complete break with the EU continue to remain high. Markets have already priced in the likelihood of a “hard Brexit.”
  • The Scottish nationalists lost a large number of seats to both Labour and the Conservatives. This reduces the likelihood of a second Scottish independence referendum. The Scots had voted overwhelmingly to remain in the EU, in the Brexit referendum. Consequently, there was some fear they would vote for independence, so that they could then rejoin the EU as an independent country. Now that prospect seems much less likely, and so a potential Brexit complication is removed.
  • Apart from Brexit, we also believe that the election results signal a growing popular concern about the economic divide in the UK—which generally pits a highly prosperous greater London against the rest of the nation. To many voters, Prime Minister May seems less compassionate with respect to social and economic issues than her predecessor David Cameron or hard-left Labour leader Jeremy Corbyn. The Conservatives are no doubt concerned about the large gains made by Labour. As a result, we think there is a high probability that May’s fellow Conservatives will replace her later this year with someone like Cameron, who may be willing to launch greater fiscal spending.
  • Any coalition government is inherently subject to strains among partners. If the Democratic Unionists were able to pull out of the coalition, there would be a new election. If by then Labour is stronger than the Conservatives, it is possible that the new prime minister could be Jeremy Corbyn, the hard-left Labour Party firebrand. But that prospect is still low.

Core narrative

We have an overweight to international developed equities. The UK elections do not fundamentally change our views. For one thing, there is no major change in the UK government or its policies, as would be the case if Jeremy Corbyn had become Prime Minister. Second, the UK equity market has already priced in a “hard Brexit,” so if there is a prospect of anything softer, that would support equities. Third, apart from the London-based financial sector, the UK stock market is dominated by energy and materials companies, which are much more impacted by oil and commodity prices than by UK political or economic developments.  


Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation. Wilmington Trust Company, operating in Delaware only, Wilmington Trust, N.A.,  M&T Bank and certain other affiliates, provide various fiduciary and non-fiduciary services, including trustee, custodial, agency, investment management and other services. International corporate and institutional services are offered through Wilmington Trust Corporation’s international affiliates. Loans, credit cards, retail and business deposits, and other business and personal banking services and products are offered by M&T Bank, member FDIC.

These materials are based on public information. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of Wilmington Trust or M&T Bank who may provide or seek to provide financial services to entities referred to in this report. M&T Bank and Wilmington Trust have established information barriers between their various business groups. As a result, M&T Bank and Wilmington Trust do not disclose certain client relationships with, or compensation received from, such entities in their reports.

The information on Wilmington Wire has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates, and projections constitute the judgment of Wilmington Trust and are subject to change without notice. This commentary is for information purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or a recommendation or determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the investor’s objectives, financial situation, and particular needs. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will succeed.

Any investment products discussed in this commentary are not insured by the FDIC or any other governmental agency, are not deposits of or other obligations of or guaranteed by M&T Bank, Wilmington Trust, or any other bank or entity, and are subject to risks, including a possible loss of the principal amount invested. Some investment products may be available only to certain “qualified investors”—that is, investors who meet certain income and/or investable assets thresholds. Past performance is no guarantee of future results. Investing involves risk and you may incur a profit or a loss.

Any positioning information provided does not include all positions that were taken in client accounts and may not be representative of current positioning. It should not be assumed that the positions described are or will be profitable or that positions taken in the future will be profitable or will equal the performance of those described. Positions described are illustrative and not intended as a recommendation outside of a managed account.

Indices are not available for direct investment. Investment in a security or strategy designed to replicate the performance of an index will incur expenses, such as management fees and transaction costs that would reduce returns.

Third party trademarks and brands are the property of their respective owners.


Contact an Expert