The results of Thursday's federal election in the U.K. cloud the outlook for Brexit and could complicate trade negotiations for countries such as Canada, analysts suggest.
The U.K. election failed to produce a majority government and looks likely to result in a coalition between the Conservatives and the Democratic Unionist Party (DUP) of Northern Ireland, which could impact Brexit negotiations, suggests a new report from CIBC World Markets Inc.
"While the DUP supported Brexit, it has said that does not mean ‘leaving Europe'," the CIBC World Markets report says. "As such, their influence could result in a ‘softer' Brexit during the negotiations."
In fact, the prospect of a softer Brexit appears to be producing a modest reaction in financial markets, the report notes.
In addition, the election results create uncertainty in terms of government policy, generally, and Brexit specifically, suggests a new report from Fitch Ratings Inc.
That report suggests that there's a greater possibility for a softer Brexit or a disorderly exit from the European Union (EU).
"The result underscores how no single Brexit negotiating position appears to command majority popular or parliamentary support," the report says.
In addition, the Fitch report says that the election increases the possibility of looser fiscal policy in the U.K.
"A minority or Conservative-led coalition government may have to compromise on the pace of fiscal consolidation or specific policy measures to maintain parliamentary support," the Fitch report says.
For Canada, the election results "shouldn't have a significant impact," the CIBC World Markets report says. "However, a more complicated political backdrop in the U.K. could make negotiating trade deals with countries outside the EU, including Canada, a longer process."