UK election: Now what? Scottish surge and ‘Brexit’

Peter Macdiarmid | Staff | Getty Images

The surprise success of the Conservative Party in the U.K. elections, and the near wipe-out of Labour in Scotland, could have ramifications for the country as a whole and its future in the European Union (EU).

The election has turned into a repeat of the 1992 elections, when the Conservative Party won a surprise victory at the ballot box. Markets rebounded on the news, with the FTSE called up 101 points at the open, and sterling up 2 percent in overnight trade.


While markets may not like surprises, as the cliché goes, this victory is one they've applauded for the consistency and business-friendly policies it will provide.

"It's steady as she goes. We're going to have a continuation of austerity, but in a fairly moderate way. Monetary policy in turn will tighten, but in a gradual manner," Jacob Nell, chief UK economist at Morgan Stanley, told CNBC.


UK 2015 election results
PartySeats
Conservative
Labour
Liberal Democrats
UK Independence Party
Green Party
Scottish National Party
Others
Total seats declared:
/ 650

Yet the most important factor for the future of the U.K. may be the huge swing from support from the opposition Labour party to the Scottish National Party (SNP) in Scotland.

The success of the SNP means Scotland is likely to win more powers of self-governance, and maybe even another referendum on independence. Alex Salmond, the party's former leader, told voters: "It is inconceivable that such a statement by the Scottish people could be ignored."


Who’s out of a job?

All three leading opposition parties are now without a leader. Ahead of his resignation Friday, Labour leader Ed Miliband, who had taken his party further to the left in recent years, conceded that his party had failed with the electorate and that it been a "very disappointing and difficult" night.

The leaders of the Liberal Democrat party—previously the ruling Conservatives' coalition partner—and the populist U.K. Independence Party (UKIP) also stepped down.

"I always expected this election to be exceptionally difficult for the Liberal Democrats...We have suffered catastrophic losses," Lib Dem leader Nick Clegg said Friday.

Potential future Labour leadership candidates include Yvette Cooper, the current Shadow Home Secretary, Andy Burnham, the Shadow Health Secretary, and Chuka Ummuna, the Shadow Business Secretary.

The Scottish factor

A strong SNP presence at Westminster for the first time is going to give the party a lot of bargaining power. It now has a mandate to seek further independence for Scotland and press the government on the reform pledges it made around the time of the referendum.

The SNP's manifesto for the 2016 Scottish elections could well include a second referendum on Scottish independence from the rest of the U.K., a prospect which could concern markets.

Brexit?

The biggest concern over a Conservative victory has always been the prospect that the U.K. will go on to vote for an exit from the EU in a referendum which Cameron has promised before the end of 2017.

"The big new issue is the uncertainty that will be brought into the economy as a result of this 2017 referendum. It will be a negative for investment in the U.K," Nell said.

With a strong wind in his sails, Cameron is likely to try and exact some concessions from his counterparts in Germany and France. Without them, the Brexit markets fear could yet happen.

We need to talk about Nigel

As the U.K. has a first-past-the-post electoral system, the U.K. Independence Party's number of votes was always going to outstrip their representation in Parliament. Still, the huge discrepancy – it looks to have more than double the SNP's number of votes, but a fraction of the Scottish party's seats – is going to raise questions about the fairness of the electoral system and whether the U.K. should introduce some form of proportional representation.

One of the biggest casualties of this discrepancy was UKIP's own leader, Nigel Farage, who failed to win the battle for his constituency in southern England.

By CNBC's Catherine Boyle