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What does the UK election mean for the Australian economy and stocks?

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Prime Minister Boris Johnson will go head-to-head against Labour leader Jeremy Corbyn in the UK’s third general election in five years in what all sides of politics are describing as the most important UK election in memory. 

Johnson is hoping to score a major majority to execute his Brexit plan which would see the UK rapidly depart the EU.

Voters will head to the polls to choose between Johnson’s ‘Get Brexit Done’ approach to withdrawing the UK from the European Union and Corbyn’s softer Brexit deal, although the UK Labour Party leader has spent more time during his campaign trail talking about other policy issues including healthcare.

And while England is more than 15,000km away from Australia, Brexit is considered an international concern with geopolitical risk and trade tensions named as the highest global risk, according to a survey by US financial services company DTCC.

So what impact could the UK election have on Australia’s economy? Yahoo Finance asked the experts.

We won’t see any significant impact to the Aussie share market – but a BoJo win will mean less volatility.

The general consensus is that the Conservative Party is expected to win – and if that’s the case, it’s business as usual.

“The market hates uncertainty. More specifically, it prices assets based on what it expects to happen,” Motley Fool chief investment officer Scott Phillips told Yahoo Finance.

“In that sense, a victory for the Conservatives and a subsequent Brexit (arguably with an electoral mandate) is what the equity and currency markets are expecting. If that’s the outcome, I’d expect to see little in the way of meaningful short-term moves on our, or international, markets as a result,” he said.

In fact, a Conservative win could actually spell good news, said JP Morgan Asset Management global strategist Kerry Craig. “One of the lingering areas of political uncertainty should be removed from investors list of worries,” he said.

AMP Capital chief economist Shane Oliver said that the UK stock market could see a boost due to “relief at a hard left government being avoided”. 

“But I would not expect a huge impact on Australian shares – maybe companies with UK exposure get a boost.

“If Labour wins, it may be negative for UK assets given the uncertainty around Labour policies.”

And with close ties between the Australian Coalition government and the UK Conservative party, Phillips added that a Boris Johnson victory could mean speedier trade deals being negotiated, to the benefit of Australian exporters doing business with the UK.

Either way, a Brexit won’t happen overnight: the actual divorce between the UK and continental Europe will be a long process. And before we actually know what the result is, speculation can only get us so far.

“Even though the current polls suggest that the Conservative party will win a majority of seats in the parliament, the polls have been wrong in the past more than once and the result could be hung parliament leaving investors will the Brexit debacle to linger on for longer,” said Craig.

There’ll be no discernible impact on the Australian economy – but businesses trading with the UK might be concerned.

Our economy is plagued with enough domestic issues as it is, said JP Morgan Asset Management’s Craig, and other global risks like the US-China trade war will likely have a bigger impact than Brexit or the UK election on global growth and Aussie exporters.

But depending on who wins, and depending on Brexit, the trade rules could change, he also warned.

“There will be companies with a greater focus on exporting to the UK, over the US or China for example, and those companies may have worries over how the rules around trade may change after the UK leaves the EU and Australia may have to enter into a new trade relationship between the UK and Australia.

“The status quo is likely to hold at least until the Brexit process is completed and this has the potential to take multiple years.”

What about the Australian dollar?

Although CommSec chief economist Craig James doesn’t see Australia’s economy or stock market taking a hit, the pound will shift depending on the winner.

“In turn, this will be of importance for companies focussed on UK and European trade and some globally-sensitive companies like BHP, Rio Tinto and Brambles,” he said.

“The Aussie dollar is trading near 52 pence, down from highs near US55 pence in early October. Further strength in pound sterling is contingent on the Conservatives winning a sizeable majority in the parliamentary elections.”

According to Oliver, the Aussie dollar will slip against the pound if Conservatives win, but will go up if we see a Labour victory.