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Reaction: UK prime minister calls for general election

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UK prime minister Theresa May has called for a general election on 8 June in a bid to strengthen the ruling Conservative Party’s majority in government ahead of the start of negotiations to leave the European Union.

Speaking outside her official residence in London this morning, she said her government had “the right plan” for Brexit and criticised her opponents’ approaches following last summer’s referendum.

May argued that more votes for the Conservatives would “make me stronger when I negotiate for Britain with the prime ministers, presidents, and chancellors of the EU”.

She reiterated her desire for a “deep and special partnership between a strong and successful EU and a UK that is free to chart its own way in the world”, echoing the wording of her letter last month to the EU triggering Article 50 and beginning the exit process.

Politicians will vote tomorrow on whether to agree to a June election. Two-thirds of MPs are required to support the motion to overrule the Fixed Term Parliament Act, which had set the next election for May 2020. Jeremy Corbyn, leader of the opposition Labour Party and therefore its candidate for prime minister, has previously supported the idea of an early election. Betting companies have the Conservative Party as the overwhelming favourites to win the poll.

Sterling rebounded strongly versus the US dollar today, after initially falling immediately prior to the speech.

“The unexpected election further highlights the number of unknowns facing markets in the period ahead, with very little margin for error when markets stand at historically high valuations,” said Peter Hensman, fund manager at Newton Investment Management. “Geopolitics, politics, and monetary policy changes all have the scope to challenge becalmed financial conditions and warrant a cautious positioning.”

Despite the Conservatives’ strong position, AXA Investment Managers’ senior economist David Page said there was “a real risk that the outcome of an 8 June election would be to make a material change to the government and hence alter the course of the proposed Brexit negotiations”.

“Markets now appear reconciled with the UK’s chosen Brexit path and the possibility of increasing the security of this outlook appears appealing,” Page added. “To this extent, we suggest that signs that the [Conservatives] might struggle to increase their majority and hence shift the envisioned path of Brexit could have an adverse impact on markets over the coming weeks. But with uncertainty increased, we should expect an increase in volatility, particularly as polling begins over the coming days.”

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