Hard UK election may end up leading to a softer Brexit

Markets had been expecting that Britain’s Conservative government would be returned with an increased majority in last week’s UK general election, with both UK stock and bond markets making gains over the course of the campaign.

In a big surprise, though, the Conservative Party lost its majority, although it still looks set to form the next government as a minority administration, with the support of the DUP. Prime minister Theresa May intends to lead the new government, but questions are being raised about her long-term political future.

Sterling lost ground on election night, falling by 1.5%-2% once a key exit poll pointed to a hung parliament.