The UK faces a pivotal election next month that’s meant to resolve the long-running Brexit saga. But while the result may end the stalemate between the UK’s lawmakers, the eventual fate of Brexit is still uncertain, in our view.

One way or another, the UK general election on December 12 will go a long way towards breaking the Brexit deadlock. Either Prime Minister Boris Johnson’s Conservative Party will be returned with a big enough majority to get his deal through Parliament or the UK is heading for a second referendum that would probably reverse the decision to leave the European Union (EU).

Conservative Party Lead Looks Strong…

As things stand, Johnson is in pole position. Opinion polls released over the past week put the Conservative Party’s share of the national vote at an average 42%, 12 points ahead of the Labour Party’s 30% (Display). In theory, this should be enough to give the Prime Minister a comfortable majority of more than 50 seats.

…but the Election Outcome Is Unpredictable

There are two caveats to this theory. First, the Tories held an even bigger lead at a comparable stage of the 2017 election, yet frittered that away and eventually fell short of a majority. Second, even if the Conservatives maintain their current lead when votes are cast on December 12, it is hard to know how accurately national vote shares will translate to parliamentary seats. That’s because Brexit has been very disruptive to traditional voting patterns in the UK’s highly fragmented first-past-the-post electoral system. So while a Conservative majority is the most likely outcome on December 12, it shouldn’t be taken for granted.

The only plausible alternative to a Conservative majority government is another hung Parliament and minority government. The composition and longevity of that government would depend upon the precise distribution of seats in the new Parliament. But it’s clear what another hung Parliament would mean for Brexit. With Johnson’s gambit having failed, a second referendum would inevitably be seen as the only way to break the Brexit deadlock. And it’s highly likely that “remain” supporters would win a second referendum—not so much because voters have changed their minds, but because Parliament would skew the rules to help achieve that outcome.

Result Will Be Pivotal for Brexit

December’s election is therefore likely to prove pivotal. Either the UK will move swiftly towards an orderly EU exit or there will be another referendum, probably resulting in no exit after all. There are, of course, other paths forward, including the possibility of a parliamentary stalemate and no-deal Brexit in January. But that’s now a low probability event—not least because the Conservative Party is united behind Boris Johnson’s deal.

Not surprisingly, markets have responded positively to a narrower range of Brexit outcomes, particularly the reduction in no-deal Brexit risk. But there are still reasons for caution.

EU Trade Negotiations Yet to Start

First, Johnson’s deal covers only the UK’s legal exit from the EU. The terms of the future trading relationship and the transition from one regime to another have not yet been discussed. What we do know, though, is that the direction of travel would be towards a much looser trading relationship (in other words, towards what used to be called a hard Brexit).

Moreover, whatever the direction of travel, we also know that EU-UK trade would revert to World Trade Organization (WTO) terms at the end of 2020 if no trade agreement had been reached or if the UK hadn’t paid to extend its transitionary membership of the EU’s single market and customs union. (This must be done by the middle of next year, which Johnson has so far ruled out). The threat of a no-deal Brexit has therefore been postponed—not eliminated.

Further Policy Uncertainty Possible

The second reason for caution: an inconclusive election result and hung Parliament would probably lead to a second referendum, but the Labour Party would be the dominant player in any non-Conservative government.

Labour is standing on the most radical, left-wing platform for more than a generation (advocating a huge increase in the role of the state, including large-scale nationalization, a four-day working week and much higher taxation, particularly of the wealthy). While it’s unlikely that Labour would be able to implement its more radical policies as a minority government, there would clearly be greater domestic policy uncertainty (as opposed to Brexit policy uncertainty).

Unresolved Economic Questions

So what does all this mean for the UK economy?

December’s election will help determine whether or not the UK actually leaves the EU, and a reduction in no-deal Brexit risk is clearly a welcome development. However, it’s not clear that the election result will lift the veil of uncertainty currently weighing on UK business confidence and investment. With both main parties promising higher government spending, there are rising hopes that fiscal policy will provide a catalyst for growth. But fiscal policy is already providing a lot of support to the economy and it’s not clear that this will be a gamechanger either.

In short, the worst outcomes have probably been avoided, but the UK economy will likely struggle to gain traction over the coming year. This means an increase in UK interest rates is still a distant prospect—indeed, near-term risks are still skewed to the downside.

Darren Williams is Director—Global Economic Research at AllianceBernstein.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. AllianceBernstein Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom.