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13 Dec 2019

International Economy

UK Election 2019: Tories’ victory will unlock Brexit hurdle in the short run, but there are other challenges ahead (Current Issue No.3061)

              The preliminary result of the UK election on December 12, 2019 shows that Boris Johnson's Conservative party has secured a majority, and he will remain prime minister. Moreover, the Conservative party has gained a comfortable majority, winning 364 seats (of the total 650 seats) in the House of Commons. KResearch thinks that such a political mandate will pave the way for the successful passage of the long ordeal Brexit law to enable the UK to begin the official process of divorcing the European Union (EU) by the latest deadline of January 31, 2020 (after three postponements). The election marks a major historic breakthrough in UK politics and eases the pressure on the regional economy. Nonetheless, there are issues to be monitored as follows:

              In the short-term, the election result will lead to the UK departure from the EU by January 31, next year. The positive impact has been immediately felt as the UK pound has become stable, easing the inflation pressure due to the reduced import costs. Moreover, the stronger British pound will open the opportunity for the Bank of England to undertake an expansionary monetary policy to boost the economy. This should have a positive effect and make the UK economy rebound next year.

              After Brexit is completed, as the future of this British government remains uncertain, it depends on their ability to solve the economic woes to match the British voters' expectations. Their performance will not only enhance the standing of the Conservative government, but also prove that the UK departure from the EU will improve the UK economy even though the result will not be clearly evident until after the next 1-3 years. Hence, the acceleration of the free trade talks between the UK and EU, and other free trade agreement (FTA) negotiations between the UK and other trading partners that the British government used to have an FTA agreement with under EU membership, will be crucial to maintain the status quo and will play a crucial role in driving the economy forward in the future.

          ​     Regarding the impact on Thailand, it is clear  that the recent UK economic performance and the recent movements of the currencies do not bode well for Thai exports to the UK. In the first 10 months of 2019, Thai consignments to the UK contracted by 4.7 percent YoY. Such pressure will continue to slow the outbound shipment to the UK throughout this year. KResearch projects that Thailand's exports to the UK in 2019 will continue to contract for the second year in a row at 4.2 percent YoY. Nonetheless, the election outcome, which supports the Brexit process, will contribute to the overall economic sentiment. Additionally, due to the low base effect of Thai exports to the UK this year, Thailand's outbound shipments to the UK market will slightly recover and enjoy a single digit growth rate in 2020.



International Economy