UK election: Boris Johnson wins big, but beware of the hangover

The Conservatives have won the UK general election, winning a large (projected) majority of 76 seats - the largest Conservative majority since Margaret Thatcher won in 1987. The Labour party, under the leadership of Jeremy Corbyn, posted its worst performance in a general election since 1935. The value of sterling rose sharply on the news.

After 645 seats of 650 seats declared, the projected seat numbers are: Conservatives 364 seats (up from 318 at the last election in 2017), Labour 203 seats (down from 262), SNP 48 seats (up from 35), Lib Dems 12 seats (no change), Plaid Cymru 4 seats (no change), Green 1 seat (no change), Brexit Party 0 seats, and others 18 seats.

It seems Brexit was the main factor in the election result - leave-voting areas in the Labour heartlands in the north of England swung heavily towards the Conservatives from Labour. But the unpopularity of the Labour leader Jeremy Corbyn and Corbynism (policies that would have seen a radical increase in the size of the state) also likely played an important role. Mr Corbyn has announced that he will not lead Labour into the next election. The Lib Dems failed to make a breakthrough and their leader, Jo Swinson, who faced criticism for her uncompromising policy to revoke Brexit, lost her seat. In the end, the remain vote was split across several parties (including Labour, Lib Dems, SNP, Plaid and Green).

Prime Minister and Conservative leader, Boris Johnson, said that he had been given "a powerful new mandate to get Brexit done".

What does this mean for Brexit?

It's now clear the UK will leave the EU, and by the end of January 2020. The Brexit Bill will go before MPs next Friday. During the campaign, Boris Johnson said that every single Conservative candidate had pledged to vote for his Brexit deal. With a large majority in the House of Commons there is no doubt that Mr Johnson's deal will now be ratified and the UK will leave the EU.

Under Mr Johnson's Brexit deal, upon leaving the EU, the UK will enter the standstill transition period until end-2020. During this period the UK will be officially out of the EU although it will temporarily be treated as if it were an EU member state, but without any voting rights.

Brexit uncertainties will continue. Mr Johnson's Brexit deal only covers the separation issues (it's just stage one), negotiations on the future relationship have not even started and will likely take years.

The Conservatives are proposing a hard Brexit - the UK (excluding Northern Ireland) will be out of the EU single market and out of the customs union, replacing it with a free trade agreement. But this is highly unlikely to be signed by the end of 2020, which is when the transition period expires.

The same issues over the pooling of sovereignty in return for market access, which have dogged Brexit negotiations with the EU for the past three years, will resurface again in negotiations on the future relationship. Talks will be very difficult, complex and lengthy. Mr Johnson has argued that trade talks with the EU can be wrapped up within a year, arguing that the UK and the EU start from a position of equivalence. But, of course, both sides will defend their own interests, and the Tories are seeking to deregulate and diverge from EU law. Mr Johnson and the hardline Brexiteers in his cabinet fought hard for commitments to the EU's "fair playing field" rules to be dropped from the Withdrawal Agreement, which will make it much more difficult for the EU to agree to a free trade deal, and materially limit how ambitious any trade arrangement can be.

It's why trade negotiations typically take a long, long time to conclude, ratify and implement. A trade agreement that covers aspects of services (where the UK's comparative advantage lies) is likely to be a "mixed agreement" in EU jargon and therefore require the ratification by national and regional parliaments of the EU, a complex and lengthy process. The EU-Canada free trade agreement took 7 years to negotiate and nearly failed when the Walloon government (representing just 0.7% of the EU population) rejected it and demanded safeguards. The EU can apply the agreement provisionally until ratification, but the uncertainty over whether it will be ratified or not could last for years.

The 2019 Conservative manifesto states in bold print that "we will not extend the implementation period [i.e. the standstill transition period to end-2020] beyond December 2020". Refusing to extend the transition period raises the very real risk of a no-deal Brexit at the end of 2020 when the transition period expires, which would be very damaging economically.

Our base case is that, with a comfortable majority of seats in the House of Commons, Mr Johnson will have the flexibility to face down the hardliners in his party and avoid a cliff-edge at end-2020. What is in manifestos and what actually happens are often different. The UK and the EU could form an interim agreement to maintain market access, allowing further time to negotiate a full deal. All trade deals that the EU has signed over the last five years have included implementation periods of at least 18 months, allowing firms time to adjust to the new rules once they are known.

Even so, the rolling uncertainty will remain.