The UK’s Improbable Hung Parliament: What’s Next?

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On Wednesday we reported that the digital business policies of Britain’s two biggest political parties, Labour and the Conservatives, were similar verging on inseparable. This morning the country is waking up to the news that the British public can barely decide either.

What happened, and what’s next?

At time of publication Theresa May’s Tories have won 315 of 646 parliamentary seats, with four yet to be counted. To form a majority government, a party must win 326 seats. Mrs May has fallen short amid substantial gains for Jeremy Corbyn’s hard-left Labour.

Britain’s electoral system rarely affords hung parliaments (the two times it has occurred post-World War II was in 1974 and 2010). But it appears that is the reality facing the nation today. There are several options for Mrs May, who still holds a significant lead over Labour’s 261 seats.

Option one is to form a coalition government with other parties. This happened in 2010 when Nick Clegg’s Liberal Democrat party joined the Conservatives in a ‘Con-Lib’ power share. It worked reasonably well for the Tories but has proved catastrophic for the Lib Dems, whose voter base fled after key progressive pledges, such as the abolition of tuition fees, were squashed under David Cameron’s centre-right party. They have made some gains this vote under Tim Farron but only hold 12 seats.

Last night former Lib Dem leader Menzies Campbell suggested his former charges would not join the Conservatives again. But the promise of power is a mesmerizing draw. Other parties include the Democratic Unionist Party, a Northern Irish group formed in 1971 to hold together the British Union. It holds ten seats.

The Scottish National Party (SNP), which has for years held the lion’s share of votes in Scotland, and which has campaigned on Scottish independence from Westminster, holds 35 seats. This is another possibility for Mrs May. But she could struggle to bargain with the SNP given the Tories’ opposition to the breakup of the union.

To form a Labour-led coalition Mr Corbyn could bring together the SNP, Lib Dems, Green Party and Welsh and Northern Irish nationalists. This would involve a momentous amount of brokering, and is unlikely.

Exhaustingly, we may be headed for another election, which would occur should no government be formed. That would likely take place around August–crucially after Brexit talks have begun.

What about the economy?

As Red Herring reported, this election was all about Brexit. Britain and the EU will come to the negotiating table in 11 days to shape the style of the UK’s exit from the bloc. Mrs May called this snap election to bolster her power in parliament and boost a mandate for her own, tougher Brexit.

That mandate is in tatters. It appears the British people have leaned towards a softer Brexit that involves attempting to stay in the common market with its European neighbors. The instability and uncertainty this election has caused, has already wiped over 2% of the British pound’s value against the US dollar.

Without a consensus on Brexit, that uncertainty looks likely to continue. Companies are already planning to, or considering, an exit from UK operations. This election could speed up a drain of the country’s thriving financial services and fintech sectors. Britain’s digital businesses increased their value by 22% between 2010 and 2015. It is difficult to see that trend continuing–especially with the emergence of tech hubs across Europe like Berlin and Lisbon.

Most analysts in the City of London, Britain’s financial heart, had predicted a landslide for Mrs May. Today’s fluctuations also come as a result of those bad bets. The idea of a soft Brexit will be easier to swallow for many tech companies that rely on European trading and talent. But in the meantime confusion will reign over Westminster, and the financial markets.

This is a story that keeps avoiding a conclusion. As it stands, yesterday’s vote has pushed it even further away.