Theresa May’s snap election has backfired, with a hung parliament the result. Although the Conservatives won the most seats, the party does not have the majority it needs. Theresa May, and quite possibly Jeremy Corbyn, will now be starting the process of talking to other parties about alliances that will allow them to create a majority government.
Here we examine what the outcome means for the economy and ask what impact it will have on your pensions, savings and investments.
Markets and Sterling
The value of sterling has unsurprisingly dropped as a result of the hung parliament. Vinay Sharma, senior trader at ayondo markets says: “In terms of market reaction, as you can imagine, the pound is getting hit quite hard, with GBP/USD now trading just below the 1.27 handle. The bigger picture is that the uncertainty this election brings will continue to weigh on the pound and will also probably lead to a softer Brexit, which in turn could bring more volatility.”
However, with 80% of FTSE 100 revenues generated overseas, the fall in the value of the pound has given the index of the largest 100 companies traded on the London Stock Exchange a boost. The FTSE 100 index opened this morning 0.9% higher at 7,515.31.
Markets do not like uncertainty, and both the stability of the new government and the implications of that on the impending Brexit negotiations will be unsettling investors.
However, Patrick Connolly, chartered financial planner at IFA Chase De Vere, warns investors not to panic. “The impact of election results on stock markets tends to be short lived, as very quickly the uncertainty passes and stock market movements are again driven by global factors and general investor sentiment,” he says. “It should be remembered that the UK stock market has risen significantly since the EU Referendum result and the US market has risen since the election of Donald Trump.”
He adds: “The message for investors is very simple. While they may be feeling uncertain about what happens next, they need to remain calm and rational and understand that any short-term noise from the election result is likely to be just that, short-term.”
Adrian Lowcock, director at Architas takes a similar view. “It is important to keep perspective during such events,” he says. “The pound had been rising throughout the campaign so this sell-off brings it back to levels seen before Theresa May announced the general election. There is a risk in reacting quickly to the news. As we saw following both the Brexit vote and the US presidential election, markets were incredibly resilient and shrugged off the surprise results. By the time individual investors will be able to act, the markets are likely to have already priced in the shock result.”
Tom Stevenson, investment director for personal investing at Fidelity International says that the election result has highlighted the benefits of not putting all your eggs in one basket. “Markets will likely remain on the back foot while the difficult job of putting together a workable government is undertaken,” he says. “This is when a well-diversified portfolio comes into play. The case for a well-balanced portfolio, geographically and by asset class, has never been stronger.”
Pensions and policies around older people were central to every party’s manifesto. However, which of those policies will come to fruition remains in doubt.
Kevin LeGrand, president of the Pensions Management Institute says: “The pensions policies set out in party manifestos will sit ignored while other more pressing national issues are addressed first.”
Early estimates suggest that there was an above average turn out from younger voters (72% according to suggestions from the National Union of Students) and Mr Le Grand warns this could have a significant impact on policy going forward.
“At this early stage it looks like the younger generation have been influential in changing the political landscape. If that proves to be correct, the recent focus of policies on pensioners' interests on the basis of the strength of the grey vote may be reversed. This could result in a different policy approach between the generations," he says.
Richard Parkin, head of pensions policy at Fidelity International says that no major policy changes should be expected in the near future. “Strategically it seems that any reform of pension tax relief will remain on the Conservative back burner though economic circumstances may force it on to the agenda,” he says. “Following through on the Cridland recommendations on State Pension Age and the proposed abolition of the triple-lock now look difficult and given the severe reaction to the long-term care funding proposals we can expect little here any time soon.”
Housing and property
Economic stability is vital for people making decisions about whether or not to buy or sell property and as such the hung parliament will create further uncertainty for the housing market.
Jeremy Leaf, north London estate agent and former residential chairman at the Royal Institute of Chartered Surveyors says that many young people were already feeling hopeless about their ability to buy property. “If there is one message that has come out of this election, it is that the young have voted overwhelmingly for change,” he says.
“Politicians will have to consider the needs of the young more than they have in the past which could mean more help for first-time buyers, perhaps extending Help to Buy so that it covers older properties as well as new build, dealing with affordability issues and more help on stamp duty.
“One thing all the parties agree on is that we need more housing so it has to be a priority for whichever formal or informal coalition is created.”