Following the UK's election, CIPS Economist and Director for the Centre for Customised Executive development at the Cranfield School of Management, Dr John Glen, comments on what the results means for Brexit and the UK economy.
"Predictions of a Conservative government with an enhanced majority have now proven to be incorrect. Indeed the only lesson that this election has taught us is to listen to the predictions of Prof John Curtice (University of Strathclyde) who called the hung parliament sensationally in the BBC/ITV/Sky exit poll at 10.01 pm the night before.
"The result can only add to the uncertainty surrounding the UK economy and most importantly the process of negotiating Brexit. The enhanced majority which Theresa May sought has not materialised potentially emboldening the pro-Brexit wing of the Conservative party. At the same time EU negotiators may feel that their negotiating position has been enhanced by the failure of Theresa May to gain an enhanced majority in Westminster. The net result is that the probability of a hard Brexit may have increased.
"The increase in the probability of a hard Brexit and a more uncertain environment has immediately impacted the value of the pound on Friday monring had declined by approximately 1.5% against the euro and the dollar. Hence higher import costs and inflation will continue in the short term.
"The increased uncertainty could further damage investor and consumer confidence resulting in dampened GDP growth. This is reflected in the fact that the UK will continue to be the poorest performer regarding GDP growth amongst the G7 economies.
In terms of the specific challenges the economy will face:
• If the IFS (Institute for Fiscal Studies) is correct then irrespective of who forms the government difficult decisions will have to be made about taxation and expenditure.
Specifically taxes will have to be higher than suggested; the potential target might be NICs (National Insurance Contributions). Otherwise the quantity and quality of public services will have to decline. The most obvious pressure in the latter respect will be felt in the area of social and health care spending for an ageing population.
• Significant moves to onshore supply chain activity will now be enhanced given the increased probability of a hard Brexit which supports some of the findings of the recent CIPS Brexit survey.
• Finally those of us who can remember 1974 will be considering the probability of second election later this year."