The U.K. election has one big winner: The thesis that “getting Brexit done” after 3½ years of uncertainty is the only thing that really matters. Reality will likely prove more complex.
On Friday, the Conservative Party won the U.K. parliamentary election with the biggest majority since the days of Margaret Thatcher in the 1980s. It was an even better result for sitting Prime Minister Boris Johnson than opinion polls published ahead of the election suggested.
The pound jumped about 2% against the euro after an exit poll published late Thursday and held its gains as the vote count continued early Friday, reaching its highest since 2016. Throughout the election campaign, markets have rallied whenever the chances of a Conservative majority increased and dropped at any whiff of an outcome that may have put leftist firebrand Jeremy Corbyn in charge.
The problem is that investors’ apparent position, however consistent, never made complete sense.
While Mr. Corbyn’s policies had much that investors were scared of—like nationalizing utilities—he was unlikely to enact them, given that no poll even came close to suggesting he could govern without support from centrist pro-European parties. Such a Corbyn-led coalition would have ensured either a very soft Brexit or its cancellation altogether, a position that most investors think is better for the U.K. economy.
By contrast, the Brexit deal that Mr. Johnson has reached with European officials includes the possibility of a much starker trade divergence with the European Union, which Conservative lawmakers now have all the power to enact.
Yet investors seem to have embraced the idea that the uncertainty created by the never-ending Brexit negotiations was worse than any Brexit outcome.
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Source: Wall Street Journal