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‘More short-term uncertainty’: Volatility expected as May calls snap election to strengthen Brexit hand

While City partners say Theresa May’s announcement to call a general election will strengthen the government’s hand in Brexit negotiations, the uncertainty is tipped to trigger more market volatility.

In a speech announcing the decision this morning (18 April), the prime minister blamed the government’s small majority and political infighting for her move to secure a stronger working majority in parliament. She wants to hold an election on 8 June.

Senior City partners said the decision showed May was aiming to win a stable platform before Brexit negotiations began to gain momentum. The sudden move was made following a cabinet meeting today, with backbench MPs not initially informed.

May (pictured) said: ‘At this moment of enormous national significance there should be unity here in Westminster, but instead there is division… Our opponents believe that because the government’s majority is so small, our resolve will weaken and that they can force us to change course. They are wrong… what they are doing jeopardises the work we must do to prepare for Brexit at home and it weakens the government’s negotiating position in Europe.’

Linklaters managing partner Gideon Moore said: ‘We had wondered whether there may an election called, personally it does not seem to be a total surprise. My guess is there will be internal and external reasons as it offers a good opportunity for the prime minister to increase her majority, and time will tell if that proves to be the case. You have to have regard at whether this will actually lead to a change and one assumes in these circumstances the election would not have been called other than to increase her majority, from our perspective it seems things will carry on as they are.’

City of London Law Society chair and Ashurst partner Ed Sparrow told Legal Business an election could provide the stability businesses were after for the Brexit process. He said: ‘City law firms want a Brexit that is good for clients. Clients want certainty and stability. If a general election helps to deliver this, as Mrs May hopes, then her decision will be vindicated.’

May will now require a two-thirds majority to call an election, following the Fixed-Term Parliament Act brought in to limit the prime minister’s ability to call snap elections. Labour, the Liberal Democrats and the Scottish National Party gave their support for a new election in a bid to block a Conservative party majority. May had previously set out her vision for Britain post-Brexit in a speech in January, while article 50 was triggered to begin the Brexit process last month.

Herbert Smith Freehills corporate partner Gavin Williams, who co-leads the firm’s Brexit task force, said an election could be expected to affect transactional markets in the short-term: ‘It provokes yet more short-term uncertainty for the UK and the City but with the prospect of a much-clearer mandate – and thence a marginally-strengthened hand – for the government in the negotiations with the EU. Transactions may well suffer more pre-poll postponement syndrome. Markets are likely be highly volatile in Europe, with elections coming up in France, the UK and Germany between now and the autumn.’

One City managing partner commented: ‘It would give the prime minister a mandate. Theresa May set out her vision of what Brexit should look like, but at every turn there are different views, whether in parliament or in her party. Last year people were telling us there would not be an election, we know the Brexit negotiations will be tough, so she needs to know people are united behind her. She will now need a two-thirds majority to ensure the election goes ahead, which seems likely.’

Another City partner added: ‘It’s quite surprising she didn’t do it at the end of last year, but now people have a measure of her and her government, and Corbyn has continued to dig a hole for Labour.’

An election could mean further changes to the make-up of May’s cabinet team, with Lord Chancellor Liz Truss having come under sustained criticism from senior judges for failing to block media attacks on the judiciary.