How is the UK Economy Facing Up to Brexit and the Election?

While you can question Theresa May's integrity after she called for a snap-general election (despite pledging otherwise just months before), few can argue with her strategic intelligence. There is no doubt that the decision represents a ruthless attempt to capitalise on her strength and supposedly tough Brexit stance, as she aims to claim a Parliamentary majority that will enable the Conservatives to govern largely unopposed.

This is a tactic that looks to have worked, despite the Labour Party having recently cut the Tory lead by an estimated 3% on the back of a radical and exceptionally well-received manifesto. The wider issue seems to revolve around the economic impact of calling an election at this time, particularly with Brexit negotiations set to start later in the summer.

How Will Brexit and the Election Impact on the UK Economy?

Of course, some will argue that May's decision making is largely cynical, particularly with the tough stance assumed by EU representatives suggesting that the UK may not be able to secure to deal that it craves in the longer-term.

Her supporters will point to improved economic data at the start of the second quarter, however, citing this as justification for her decision to call for an election and create a strong mandate for governance. April saw the economy rebound from a desperately poor first quarter, for example, with a dominant services sector growing at its fastest pace so far in 2017. Manufacturing and construction growth also gathered pace in April, as the combined PMI score peaked at an impressive yearly high of 56.

Despite this, there is evidence to suggest that these surface numbers do not tell to full story about the state of the economy (and the role of uncertainty in driving a longer-term decline). As anyone who has studied the recent news and this type of forex learning resource can testify, for example, the devaluation of the pound is likely to continue while the currency trades in an increasingly narrow range. Conversely, inflated peaked at 2.7% at the beginning of April, representing its highest rate in three-and-a-half years and triggering a potential cost of living crisis nationwide.

This is hardly helped by a noticeable lack of real wage growth, which is a key staple of Labour's election manifesto. So even though Tories will champion the fact that unemployment in the UK has not hit a 42-year low, many of these are low-value or entry level positions that offer intangible wages.

The Bottom Line: Why the UK Economy May Be in for a Period of Austerity

The partisan nature of British politics means that it is hard to determine which, if any, party is giving the electorate a true depiction of the nation's economy. There is no doubt that while some aspects of the UK economy have showcased robust levels of growth at the start of the second quarter, longer-term portents such as inflation and real wage growth hint at a more sustained period of austerity. This will not be helped by the spectre of Brexit or the general election, and although May's gamble may pay-off in one way it may cause significant economic issues in another.