02 Mar 10
1 edit
Originally posted by trev33A General Election! Its looming presence is already affecting the markets, and the possibility of a hung parliament more so than might usually be the case. (It's more that the UK is unaccustomed to hung parliaments than the prospect in the abstract that is worrying the markets, though: plenty of coalition or minority governments have passed budgets with ambitious cuts to the budget.) A formal Con-Lib or Lib-Lab coalition looks pretty unlikely at the moment (not least because of an early announcement to that effect by Clegg), so there would be no guarantees that an early and probably unpopular budget presented by a minority government would be passed. In a worst-case scenario, we could see legislative deadlock - and whether or not one likes facetiously to think that wouldn't matter a great deal, the markets will most certainly beg to differ.
what are we expected in the coming months?
The Tories, for their part, are expected to attempt to pass an emergency budget with an immediate tightening of belts if they win, which will push down the pound (against the dollar because in general). That said, if the markets have turned on Labour completely, and now once again associate them with economic mismanagement and eventual higher inflation, we might still see the value of the pound drop in the event of a Labour win. (My bet on Labour to form the next government, made near the peak of odds for that outcome and on the grounds of the excellent odds, is looking better and better! I wish I'd put it on a spread and could sell up now before the result is even through...)
The value of the pound is only going down, I should think, with the hope that exports will fill the gap left by shrinking government spending.