General Election and the City
The outcome of the next UK General Election is the focus of much attention by the City. The conventional wisdom is that a hung parliament might generate uncertainty because:
- It may take time to form a government, the composition of which may not be clear at first;
- A government with a small majority or a minority government may find it more difficult to give more detail on spending cuts/tax rises or even to increase the reduction in government discretionary expansion;
- There may be another election soon afterwards as the government of the day either attempts to form a working majority or falls in a vote of no confidence.
Rather than speculate on headline opinion polls, it would be better to focus on opinion in marginal seats ie where the election will be decided. I have yet to hear of any financial institution commissioning such a poll. However, Channel 4 and YouGov have done so. The results were released last week.
The poll is of 60 marginal seats – not the most marginal but those that the Conservative Party has to win to form a majority. A year ago, the Conservatives had a 7 point lead. Now, the lead is 2 points.
The prediction is that the Conservatives would win 95 seats, which would not produce a majority ie it implies a hung parliament. However, the Conservatives would be the largest party; with 305 seats (they need 326 for a majority).
A hung parliament would not necessarily cause the fiscal uncertainty that some predict. The requirement for markets will be not so much further tightening (in the next fiscal year, government discretionary expansion will be cut significantly; non discretionary spending will rise but maybe less than the Treasury predicts if unemployment does not rise as forecast) as measures that demonstrate government is committed to tackling the debt position.
From time to time there is speculation about the election date. It is most likely to be 6 May but this is not set in stone. The House of Commons Library has produced a helpful note on election timings (including when an election has to be called and the timetables for different dates). It can be found here: http://www.parliament.uk/commons/lib/research/briefings/snpc-04454.pdf
Stephen Beer, 07/03/2010