Incumbent United Kingdom Prime Minister David Cameron’s unexpected re-election this month is welcome news to most companies. His center-right Conservative Party (also called Tories) has had a relatively good track record over the past five years. Under Cameron, the UK economy has expanded rapidly and is once again one of the fastest growing in the European Union.
Further pro-business reforms are in the pipeline, and companies can expect a largely pro-business approach in the 2015-20 parliamentary term. The Tories won 330 seats, out of 650 in total, giving the party an outright majority (albeit small) for the first time since 1992.
Whether this is enough to counterbalance the increasing uncertainty stemming from the proposed referendum on UK’s membership in the EU remains to be seen. That “vote” is the biggest foreign policy issue facing the Conservatives and the country, for that matter, over the next five years. A vote was initially scheduled for 2017, but Cameron’s victory could potentially move it forward to 2016. PM Cameron has stated his goal is to renegotiate treaties with the EU and secure opt-outs in fields such as immigration and human rights.
At the moment, polls show that a majority of the UK electorate want to stay in the EU. But there is growing discontent with the high number of immigrants, especially from the EU’s poorer states in Eastern Europe.
Should the UK decide to leave the EU, the country’s access to the EU’s common market would be at risk under the most adverse scenario. The costs of a British exit or “Brexit” are impossible to quantify at the moment as they would largely depend on a deal that has yet to be negotiated between London and Brussels. But even under the most optimistic assumptions, the UK’s growth potential would suffer from such a move. A UK split from the EU also could significantly increase the likelihood for another Scottish independence referendum.
Dun & Bradstreet economists recommend postponing long-term investment in the country until the referendum has taken place. If the electorate votes for leaving the EU, new cross-border trade and investment regulations with the EU must be negotiated and put in place.
In the meantime, the losers in the Tories’ unexpected election victory will likely need to regroup after recovering from the May 7 election results. The center-left Labor Party lost 28 seats, and the Liberal Democrats, the junior coalition partner of the Tories in 2010-15, lost 49 of its previously held 57 seats. The two parties saw their leaders resign quickly in the aftermath of the election. Both parties appear headed for leadership infighting as incumbent Cameron moves to consolidate his power.
The biggest winner, besides the Conservatives, could be the Scottish National Party (SNP). By securing 56 out of Scotland’s 59 constituencies, the party more or less wiped out Labor in its former stronghold. Although the left-of-center SNP will not be able to directly influence policy making in London (as the Conservatives do not rely on any coalition partner), its political influence could rise during the parliamentary term.
Given the SNP’s new power, a second referendum about Scottish independence (the first one was narrowly rejected in September 2014) is possible and could have future implications for businesses in the UK.
Having previously worked for the European Parliament in Brussels, Markus Kuger joined D&B’s office in Marlow/United Kingdom in June 2010. In his role as Senior Economist in D&B Macro Market/Country Insight Products, he is writing about his home country Germany as well as the UK, France, the Netherlands, and Poland.