Just when you thought things in Westminster might be quietening down for the summer, the Prime Minister has surprised politicians and commentators alike by calling a general election for 8 June despite explicitly ruling this out a little over a month ago.

Ben Carroll from WA Investor Services explains why Theresa May has called a snap election and how it will impact investors.

What does this mean for government policy?
Unlike the 2015 general election, which the pollsters infamously predicted would result in a hung parliament followed by a Labour minority government, commentators this time around agree that this snap election will see a significantly increased majority for the Conservative government.

Labour has been seriously weakened under Jeremy Corbyn, as was evident in their recent loss in the Copeland by-election. Moderate Labour MP Tom Blenkinsop has already announced his intention to stand down at this election and like-minded colleagues are expected to follow, joining the likes of Jamie Reed and Tristram Hunt who have already abandoned ship.

But this election is not just a chance for the Prime Minister to get rid of opposition MPs. Thanks to the continuing disarray in the Labour Party ranks, the most effective opposition in parliament now comes largely from the government’s own backbenches. Theresa May now has the opportunity to increase her working majority from 17 and undermine the influence of awkward Conservative backbenchers, allowing her to tighten her grip on parliament – and potentially pursue a more pragmatic Brexit negotiation.

In general terms, once the short-term instability of the election period is over, we can expect to see more speed and continuity in policy terms, with the government able to push through legislation more quickly. U-turns, such as the Chancellor’s hasty reversal on National Insurance Contributions last month following the admission this contradicted the 2015 manifesto, are likely to become more of a rarity. This could result in a more transparent and stable policy environment, at least domestically, which will be of benefit to investors.

Theresa May has already made her domestic policy intentions clear, and an increased majority in parliament would create additional momentum behind landmark policies such as grammar schools and the government’s industrial strategy.

In what now seems like an impressive act of soothsaying, the Sunday Times ran a piece this weekend detailing the potential proposals for a Tory manifesto, including, for example, a pledge to divert foreign aid spending to the armed forces, and a reversal of the ‘triple lock’ pensions guarantee.

Despite a fairly ambitious domestic agenda, it seems unlikely that the government will significantly increase public spending. This means there will be losers as well as winners within the investor community. Those with assets in sectors that the government has signalled it will prioritise – technology, defence and apprenticeships for example – are likely to benefit, while the future for other publicly funded sectors is less clear.

What about the impact on Brexit talks?
Alongside a strengthening of Conservative numbers, recent by-election and polling numbers indicate the Liberal Democrats could be set for a resurgence. This bodes well for those still hoping for a soft landing when the UK exits Europe, while giving the Prime Minister the confidence to stand up to harder-line, anti- EU backbenchers within her party, opting for a Brexit deal that aligns more closely to the concerns of business leaders and investors.

During May’s recent trip to Saudi Arabia, she conceded that free movement from Europe could extend past 2019. Such admissions were branded a ‘Brexit betrayal’ by some commentators, while seen as necessary concessions by European leaders. The Prime Minister could be far more willing to strike a softer tone on Brexit talks should she reduce the capability of hard Brexiters to force the government’s hand. The UK is still heading for the exit door from the EU, but investors should take confidence if polls indicate a strengthening of the Remainers left in parliament.

The general election also increases the prospect of a transitional deal being put in place following the completion of Brexit talks in March 2019. The Fixed Term Parliaments Act dictates five years between general elections, meaning the following election from this one is likely to take place in 2022. This timetable would match the EU’s position that any transitional deal should last a maximum of three years, meaning the UK’s departure from Europe should not be prolonged past 2022. If such timetables were to align (with that being a big ‘if’), this would provide greater clarity for investors on the type of Brexit we’re heading for, while allowing extra time for any contingency measures to be put in place.

Where does that leave investors?
General elections traditionally make investors jittery over the likelihood of political uncertainty, but this time around it could bring about the opposite effect. Theresa May looks set to strengthen her position when the election takes place on June 8, cementing her position in Number 10 and ensuring she sets a domestic and foreign policy agenda that she sees fit. This is, however, by no means a green light for investors to rest on their laurels. There are still myriad pressures facing government, both at home and abroad, that will continue to shape the political and policy agenda. As always with politics, the devil is in the detail.

Ben Carroll is a policy and political risk analyst at WA Investor Services.