Elections

How investors are reacting to Britain's inconclusive vote

Key Points
  • Sterling slipped during Monday morning trade to extend losses sustained in the aftermath of Thursday's General Election outcome.
  • "It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders," said Stephen Martin, director general of the Institute of Directors.
People walk near the Elizabeth Tower, commonly referred to as Big Ben, near the Houses of Parliament in Westminster, central London on April 18, 2017.
JUSTIN TALLIS | AFP | Getty Images

Britain was plunged deep into political uncertainty after last week's inconclusive General Election and while Westminster comes to terms with a hung parliament, CNBC spoke with various analysts to understand the impact on investors over the coming months.

Guy Hands, founder of Terra Firma

Hold back on investing, the UK will become very cheap: Terra Firma
VIDEO3:1203:12
Hold back on investing, the UK will become very cheap: Terra Firma

"Clearly the pound is a little bit weaker, I think it's going to bounce around for a while and then probably get weaker again," Guy Hands, founder of private equity group Terra Firma, told CNBC on Monday.

"I think England is going to become very cheap so from an investment point of view, probably hold back a little bit but at some point step in and buy," he added.

Prime Minister Theresa May and her ruling right-wing Conservatives lost their parliamentary majority in Thursday's snap election and will now seek the support of Northern Ireland's Democratic Unionist Party (DUP) in order to govern.

Tapan Datta, head of asset allocation at Aon Hewitt

Markets don't know how to price the UK post-election: Aon Hewitt
VIDEO3:3603:36
Markets don't know how to price the UK post-election: Aon Hewitt

"Markets don't quite know how to price this and that is the fundamental reality of the position," Tapan Datta, head of asset allocation at Aon Hewitt, told CNBC on Monday.

"We are still working on the idea that a (Brexit) Armageddon has been avoided and we don't have that fabled cliff-edge in a couple of years' time," he added.

Analysts at Moody's Investor Service

Emmanuel Dunand | AFP | Getty Images

Since the result, May has vowed to continue governing in a bid to provide "certainty" for the British people.

The U.K.'s prime minister also insisted that regardless of any perceived Westminster tumult, formal Brexit negotiations would stick to the current timetable and begin on June 19.

Speculation in Brussels has intensified in the aftermath of Britain's vote with some EU diplomats questioning whether May would continue with her pursuit of a so-called "hard" Brexit.

"The inconclusive election outcome will complicate and probably delay Brexit negotiations (and so should be) credit negative. The time frame for the UK's withdrawal from the EU in March 2019 remains unchanged, reducing still further the time available to achieve the transition agreement needed to avoid a 'hard' Brexit," a team of analysts at Moody's Investor Service said in a research note.

Stephen Martin, director general of the Institute of Directors

Technicians work on London Underground trains at the Bombardier Transport manufacturing plant in Derby, England
Christopher Furlong I Getty Images

Elsewhere, the Institute of Directors, a U.K. based lobby group, suggested on Monday that the uncertainty created by the General Election had caused business confidence to fall "through the floor".

"It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy," Stephen Martin, director general of the Institute of Directors, said in a statement on Monday.

Stephen Jones, chief investment officer of Kames Capital

Outlook for UK is positive, based on fundamentals: CIO
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Outlook for UK is positive, based on fundamentals: CIO

Meanwhile, one analyst forecast a much brighter outlook for the U.K. economy and suggested a hung parliament could even be a blessing in disguise.

"The negative sides of the U.K. story are constantly and very loudly put but actually, look at the fundamentals…," Stephen Jones, chief investment officer of Kames Capital, told CNBC.

Jones explained it would not be wise for investors to dismiss record low unemployment levels in the U.K., as well as consecutive quarters of economic growth, in light of the election result.

"We do have a bit more uncertainty but we have also got a situation that probably doesn't allow anybody to do anything terribly daft. We have a difficult negotiation to come but that will be done in a more pragmatic, consensus-based way involving more people," Jones added.