Another election, another electoral surprise, despite many opinion polls suggesting the Conservative party would win an overall majority in the General Election, the UK is heading for a hung parliament with the exact composition yet to be decided. At this time, it is still unclear if Theresa May will remain as Prime Minister given her poor election showing, although early indications are she will remain in power. With most of the results in, the Conservatives are on track to win the largest number of seats in parliament, but have failed to win an outright majority; this leaves the party reliant on forming a coalition with the Northern Ireland Unionists if they are to remain in power. It was a better night for the Labour party who increased their number of MPs, at the time of writing, by 29.

The market reaction to the result has been relatively muted, with Sterling seeing the largest volatility, declining by around two-percent against most of the major currencies. The FTSE 100, which consists of large multinational corporations that generate close to 75% of their revenue overseas, is actually up since the election result, helped in part by the drop in the currency. The FTSE 250, which consists of domestic-focused corporations, has opened slightly down, while most other international equity markets have started the day higher. UK government bond yields are slightly up, and the curve has steepened, which could be a result of investors factoring in higher levels of inflation over the coming months due to the further drop in the Sterling.

At this stage it is very difficult to predict the impact of the General Election result, as there are still many unknowns. What is clear is that the outcome adds another layer of uncertainty to UK politics, and the outcome is likely to be problematic for the ruling government in regards to Brexit negotiations. The Conservative plan is to have a "take it or leave it" vote in parliament on the final Brexit deal agreed with the EU, passing the deal with a lower majority of MPs will now prove harder. We could see further moves to "hard" Brexit to appease the Brexit hardliners in the Conservative party, or we could see movements to a "softer" Brexit to ensure the final deal gets the backing from a number of Labour MPs, having a concrete view at this point is difficult.

There were many downbeat forecasts for the UK economy following the result of the referendum on European Union membership, but thus far the UK economy has remained fairly resilient. The Bank of England's additional monetary stimulus last year, a pick-up in the global economy (including the Euro-zone) and continued spending from UK households have all contributed to better-than-expected UK economic growth. Forward-looking consumer and business surveys have continued to suggest the economy will grow at a fairly steady rate of between 1-2% over the next 12-months, but we will have to wait to see if there will be any negative impact from the General Election result. Our view remains that any negative impact from the greater political uncertainty is likely to be confined to the UK economy, with minimal impact on the global economy.

At this moment in time, the result of the General Election has had little impact on portfolio performance, and based on current market movements, our expectation is that all portfolios will actually record gains over the day. It should be noted that we manage diversified portfolios with significant international exposure, whilst performance is not immune to a slowdown in UK economic growth, or indeed UK politics, the portfolios in general have a greater exposure to the global economy rather than purely the UK.

Whilst we have a significant allocation to UK equities, most of this will be allocated to FTSE 100 corporations that generate a greater proportion of their revenue overseas than in the UK. Furthermore, the international equity exposure will have benefitted from the drop in Sterling. Over this uncertain period, we will of course provide regular updates.

Dan Smith

Investment Analyst

www.tminvestment.com

All investments and indexes can go down as well as up. Past performance is not a reliable indicator of future performance.

Opinions, interpretations and conclusions expressed in this document represent our judgement as of this date and are subject to change. Furthermore, the content is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or a solicitation to buy or sell any securities or to adopt any investment strategy.

Thomas Miller Investment

is the trading name of the businesses in the Thomas Miller Investment Group. This note has been issued by Thomas Miller Wealth Management Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number 594155) and is a company registered in England, number 08284862