Despite another badly run campaign (the first one being the referendum), the Conservatives still form the government. And as long as this remains the case, the chances are gone of a big rise in corporation tax, government borrowing and income tax, that the Labour party was promising, but the uncertainty will remain. And it's important to translate that uncertainty into what it means for the economy.
Inevitably, running a minority government will change the colour of the deal ultimately concluded that takes the UK out of the EU, and that's where businesses might worry. This is the crucial factor. Having spoken to a number of company executives there have been contrasting takes on the election. Some have been surprised and are clearly worried that there could be a Labour government. Others, however, have adopted a more neutral approach, preferring to have a government that is readily held in check because of its lacking a strong mandate. This has some merit. UK plc tends to run just as well or even better without political interference, with politicians ever willing to justify their cause with even greater use of fiscal hyperbole, much of which resides in the realms of fiction.
So it's not the election result per se that will provide the major influence on the UK economy outside how it will affect Britain's exit from the EU. And because this process will be protracted, convoluted and expensive, sentiment will be affected. Formal negotiations are expected to begin on 19 June with a 15-month timetable. But the point here is that even if everything went according to plan, and that includes being rubber stamped by all EU member countries, the UK wouldn't leave the single market until March 2019, and any EU-UK trade deal would be ratified some years after this.
Meanwhile, sterling's weakness will provide overseas investors with a golden opportunity to pick up income-generating assets at bargain basement prices, while even those without the exchange rate advantage will be looking for similar opportunities. It will however, pay to be choosy.
Next week's economics...
Rightmove house prices for June are due for release on Monday, and are expected to confirm the recent trend that house prices are still rising but at a slower rate. In all of this there are distinct geographical variations, notably in central London, but the overall picture tends to suggest that much of the price inflation is being underpinned by potential sellers sitting on their hands, with the number of new instructions coming to market continuing to fall. The election result can only exacerbate this reluctance to sell, and any ideas of a move to build more houses - something that at least all political parties agree on - is some years away before it has any material affect on the supply/demand imbalance. More private equity is working its way into the housebuilding programme, particularly on the social housing side. This will allow local authorities and housing associations to build more houses, but this will be from a very low starting base.
Wednesday sees the release of public sector finances data, and the picture here is not expected to provide any encouragement. In 2010, the coalition government pledged to get rid of the budget deficit by 2014-15. But in 2015 achieving a budget surplus was pushed forward to 2019-20 and has since been kicked into the long grass of 2025-26. This suggests that at some point the UK will be spending more on servicing debt than it does on the education system. And this doesn't take into account the threat that tax receipts will be lower as the pace of economic growth slows. Nor can there be any certainty about the size of any exit bill that the EU may impose as part of the UK's divorce.
