Investors are worried that the UK faces the prospect of another return to the polls, even as early as autumn, as Theresa May seeks to establish a slim majority with a DUP coalition.
May is set to visit Buckingham Palace at 12.30pm today to seek permission to form the coalition Government.
But Mark Dowding, partner and co-head of investment grade debt at BlueBay Asset Management, questions whether May will be able to stay on.
“Our initial assessment is that Theresa May is very likely to leave and new elections will probably be called at an early opportunity, as we see little scope for a workable majority.
“In more ordinary times one would not want to become overly exercised by such a prospect, but with the Brexit clock ticking, the UK seems to be in a difficult constitutional position.”
Elections could come as early as autumn, says Trevor Greetham, Head of Multi Asset at Royal London Asset Management.
The Conservatives-DUP alliance will not be a “strong and stable” government, “so another election is likely to follow after a short period under a new Prime Minister, perhaps in the autumn”.
Charles Hepworth, investment director at GAM, also believes the leadership of the Conservative party could be tested again and another election pursued later this year.
“This injects huge uncertainty into markets and will lead to volatility. In our view, this is the worst possible outcome for the markets in the short term.”
A leadership battle in the Conservatives could be “brutal”, according to Mark Rushton, CIO at Walker Crips.
“In calling the election, May made her play for a strengthened mandate for Brexit. Her gamble has failed to such an extent that there have been and will be calls for her to resign, if not immediately, then after she attempts to form a government.
“Historically, the Tories have been brutal and speedy in dealing with their own when necessary, but the key in the immediate future is to form a government; and May, who has categorically said she will not resign, has the ability and responsibility to do so.
“However, her medium term prospects are weakened.”
However, David Battersby, investment manager at Progeny Group, believes it will be more orderly.
“Theresa May is now mortally wounded but her current position is not untenable as there is no obvious candidate to take over immediately. As a result there is a strong possibility that we will have another election before the year is out with Mrs May making way for a successor in an orderly manner.”
Battersby adds: “Anyone for another election?”