Theresa May calls snap general election on 8 June
(ShareCast News) - Prime Minister Theresa May announced the UK will hold a general election on 8 June.
The pound dropped on rumours preceding the announcement, trading down 0.3% against the dollar to 1.2534, before whipsawing back up and levelling off after May confirmed in a statement outside 10 Downing Street.
With 50 days to go before the vote, May said she needed an early election because opposition parties are opposed to her government's Brexit plans, with the division in Westminster risking her cabinet's ability to make a success of the process.
As well as saying she had made the decision recently and reluctantly, she added: "I have concluded the only way to guarantee certainty and security for years ahead is to hold this election."
She added: "Every vote for the Conservatives will make me stronger when I negotiate for Britain with the prime ministers, presidents and chancellors of the European Union.
"Every vote for the Conservatives means we can stick to our plan for a stronger Britain and take the right long-term decisions for a more secure future."
Although May has several times stated she would not call an early election, the Conservative party's strong lead in the polls coinciding with questions about her mandate to pursue the 'hard Brexit' line in negotiations with the European Union seem to have encouraged the U-turn.
An average of recent opinion polls put Conservative support at 42%, with Labour at only 27% and the Liberal Democrats getting 11% but expected to regain some seats as the main anti-Brexit proxy.
A new YouGov poll in The Times on Monday showed the Tories on 44%, Labour on 23%, Lib Dems on 12% and Ukip on 10%.
May needs two-thirds of MPS in the House of Commons to overcome the Fixed Term Parliament Act and hold an early election, with Labour leader Jeremy Corbyn confirming on Tuesday that he would back such a move.
Corbyn put out a statement welcoming the news, saying the decision will "give the British people the chance to vote for a government that will put the interests of the majority first. Labour will be offering the country an effective alternative to a government that has failed to rebuild the economy, delivered falling living standards and damaging cuts to our schools and NHS."
A bigger majority - but how big?
Polling expert John Curtice, professor of politics Strathclyde University, said it would be difficult for May to win a landslide due to the political situations in Northern Ireland and Scotland, while a lot of the Labour party's MPs will be defending safe seats.
With the Prime Minister likely to campaign under a 'vote Conservative for my vision of Brexit' ticket, he said this could be a turn-off for many traditional Tory voters: "That perhaps is going to make some Conservative voters unhappy. If that lead were to narrow then we could discover that she is back with a rather smaller majority than perhaps she is hoping for," he told the BBC.
Although polls overwhelmingly suggest the Tories will increase their majority in order to secure a strong mandate for Brexit negotiations, economist Claus Vistesen at Pantheon Macroeconomics said: "The polls, however, will undoubtedly be affected by the positions taken by the opposing parties. They now have an opportunity to challenge the government's position on Brexit, and indeed the decision itself. Until we know what strategy Labour and the LibDems intend to deploy, and how polls react to that, we would be careful making any assumptions."
Neil Wilson, senior market analyst at ETX Capital, said a snap election "would throw up a huge cluster grenade of political risk, uncertainty and potential volatility in the markets" and could throw a spanner in the Brexit works.
He said for investors a UK election adds another layer of complexity to an already uncertain picture for UK and European assets.
"Volatility is likely to remain elevated over the coming weeks. And as elections are so unpredictable, there is always the outside risk it could spark a reversal in the entire Brexit process. Can the Lib Dems cobble together a pro-Remain ticket that upsets the Tory apple cart? However on the current polling the likelihood is we will be left with a government on a more secure footing that will ensure Brexit means Brexit."
For currency traders he said a stronger government might be able to get a better Brexit deal for the UK, which could support sterling, but a stronger Tory majority government could also push through a more aggressive version of a hard Brexit which would be negative for the pound.
Shilen Shah, bond strategist at Investec Wealth & Investment, noted that gilts yields had been stable, with the 10-year yield hitting a session low of 1.01%.
"Overall, today's announcement suggests that PM wants full control of the Brexit process without any interference from the opposition," he said.