Having previously ruled out a snap general election before 2020, UK prime minister Theresa May shocked many by announcing a new poll in June.
Highlighting some of the difficulties faced with a small parliamentary majority in achieving Brexit, May received support for fresh elections from across the political spectrum.
Since the announcement, sterling has reacted positively on expectations of an increased majority for the prime minister’s Conservative party.
Performance of sterling vs dollar YTD
Source: FE Analytics
While the uncertainty of a final Brexit deal with European counterparts continues to weigh heavy on the long-term economic outlook, the prospect of a stronger mandate for May has helped allay some concerns over the process.
Having activated Article 50 of the Lisbon Treaty – the process for exiting the EU – earlier in the year, the UK now has two years before it leaves the bloc and begins trade negotiations.
Pollsters have suggested that the main opposition Labour party could lose further seats and weaken its presence in parliament.
Labour leader Jeremy Corbyn – who comes from the left wing of the Labour party – remains very popular with members, but has faced a number of challenges to his leadership from other Labour politicians.
David Coombs, head of multi-asset investments at Rathbones, says there are still several possible scenarios that could play out around the looming election, with varying levels of likelihood.
The FE Alpha Manager says that an election victory for opposition leader Corbyn would not have been inconceivable, but the vote on 8 June may have come too early for the divisive politician.
“Who know what the economy will look like in a post-Brexit world?” he asked. “What I have to say about Corbyn is that he comes over quite well. Having said that I think the election has come too early for him.”
He said: “There is a massive risk that if he wins there will be a significant correction in the UK market. If we really thought that Corbyn could win the election… we would sell the last of our UK domestic stocks.” 
Coombs (pictured) says a greater threat to the UK markets would be a coalition government of opposition parties that could throw up a number of new issues for the UK economy, such as a second referendum.
“A coalition of Liberal Democrats, Labour and the Scottish National Party would be taken very negatively by markets. I don’t think sterling would do well,” he said.
Some commentators have suggested that an increased majority for the Conservative party following the election could suggest a greater willingness for a ‘soft Brexit’.
Coombs says a hard Brexit would probably be more likely than a softer Brexit, if May is returned with a significantly larger majority in Parliament.
The manager says he had already begun planning for Brexit across his risk-targeted multi-asset range well ahead of last year’s referendum.
“Back in June 2015, the Conservatives won the election and we started planning for Brexit; we didn’t make massive changes but identified that Brexit was a big risk,” he said. “As we approached the referendum and the risk of a leave vote increased.”
As part of the multi-asset team’s focus on risk Coombs says the firm had added more liquidity to the portfolio in the form of foreign currencies that were less exposed to any fall-out from a leave vote, such as US dollar and Japanese yen.
Ultimately, however, Coombs says he does not believe the election will have much of an impact on the UK market and remains positioned for a ‘hard Brexit’.
While the UK election does not pose a great risk for the manager, given the low exposure to UK stocks across the range, there are other potential headwinds.
Inflation remains a threat for the economy and may have been overlooked by some investors given the solid growth levels seen since the leave vote.
Following the referendum result last year, the Bank of England cut interest rates to a record low of 0.25 per cent in a bid to help stimulate the economy amid uncertainty caused by the leave vote.
However, Coombs says the Bank of England may have prioritised low rates and the economy over the threat of rising inflation that could emerge later in the year.
He said: “I think the Bank of England is behind the curve and should have raised interest rates by now.
CPI inflation projection
Source: Bank of England
“I hope there will be a rate rise for number of reasons. One, because I think the Bank of England is wrong, at the moment. And two, because [low rates] mean the economy is doing okay and I am not convinced that it is doing well right now.”