UK voters deliver another election surprise

A ‘softer’ Brexit looks more likely as the Conservative Party loses power

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One year after the Brexit referendum and two years after the Scottish independence referendum, UK voters have surprised the country and the markets once again, with a dramatically different election outcome than suggested by almost every poll: Instead of an enlarged Conservative Party majority, which Prime Minister (PM) Theresa May wanted to see, the result of the June 8 general election is a “hung parliament” — no party controls a majority.

Thus, the election implies uncertainty and profound challenges for governing the UK in general and negotiating Brexit with the European Union (EU) in particular — and by extension for UK macro and market performance. That said, Invesco Fixed Income believes this latest political shock is more of an idiosyncratic story for the sterling currency and UK government bonds (gilts) than the sudden, but ultimately transitory, global financial shock triggered by the Brexit referendum a year ago.

Over the longer term, however, we believe the UK