Doubts on Tory coalition delivering ‘strong and stable’ Government

Theresa May will head to Buckingham Palace at 12.30pm today to seek permission to form a parliament, but there are doubts about whether it will be “strong and stable” as per her mantra on the campaign trail.

It follows a humiliating loss for the Conservatives in yesterday’s election.

“HMS Britain is rudderless, directionless and shortly leaderless,” says Justin Urquhart Stewart, co founder and head of corporate development at 7IM, adding: “Not a good strategy for the economy.

“The Captain is likely to be tipped over the side and we will need to find a new credible commander, not just to lead us through the Brexit negotiations but also through the next election which in all likelihood could be in the next two years.”

May had sought to secure the party a stronger majority when she announced the snap general election in April.

However, in an election shock seats swung to Labour, which won Battersea, Shipley, Bury North and Stockton South among others from the Conservatives.

With all but one seat confirmed, the Conservatives won 318 seats compared to 261 seats by Labour, with the former losing 12 seats and the latter gaining 31.

It is thought she will try to seek a coalition government with Northern Ireland’s DUP.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, says:The Conservatives’ ability to push through bolder policies, especially on things like deficit reduction, is diminished and the DUP has made clear their preference for a ‘softer’ Brexit.”

But Trevor Greetham, head of multi asset at Royal London Asset Management, wonders how long the coalition will last. 

“This 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.

“The UK will have a weak government with no clear mandate heading into Brexit talks, the exact opposite of what Theresa May intended when a 20-25 per cent polling lead tempted her to call the snap election.”

The DUP are firmly in the Brexit camp, notes Hartwig Kos, vice-CIO and co-head of multi-asset, SYZ Asset Management.

He says “such coalitions are usually fragile and will certainly make Brexit negotiations more difficult”.

“The upshot, in our view, is somewhat binary: either there is a full hard Brexit scenario, driven by the “Brexiteer” camp amongst the Tory’s and the DUP; or negotiations with Europeans are going to drag on endlessly because of the divide within the Tory party and the obvious fragilities that a coalition brings with it.”