A hung parliament, Tory economic policy...and the City

With the opinion poll gap between Labour and the Conservatives narrowing there has been talk of a hung parliament.  This is pure speculation and I remain of the opinion that as Labour puts its case across, and as the Tories' policies crumble, so the gap will narrow further.  In other words, Labour can certainly win this election.


However, it is not just political commentators who are talking about hung parliaments.  City economists and strategists are doing so too.  Usually, their political analysis is not that sophisticated.  But they are worried that a hung parliament might mean action on cutting public debt may not be so firm as they hope.


I am not so sure, for two reasons.  First, I think that idea that a hung parliament means less resolute action is a big assumption.  If it's a choice between that and a Tory government that changes its economic policy every couple of days, I think I'd go for the hung parliament (of course, I'd prefer a Labour government).  But my main reason for doubting the conventional City view is that Labour's economic plans are pretty much in the right place, as much as any Chancellor can call.  Too tight a policy too soon and we risk the recovery.  Too light and we risk a crisis over the deficit (even if the bond markets are wrong in their economic assumptions, they are still powerful).  Indeed, we can see that Tory economic policy appears to be trending towards Labour's - well, the last time I looked.


Stephen Beer, 08/02/2010

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