There is much speculation among investors about who will win the UK election. Commentators suggest that a Conservative victory with a workable majority would be the markets’ preferred option, as the Tories have promised spending cuts to put the British economy on an even keel. Given that there is likely to be a budget in the first 50 days of a new parliament, the international community of investors would probably adopt a “wait and see” approach before making any big decisions.
Following Liberal Democrat leader Nick Clegg’s surge in popularity since his television triumph last week, he has enjoyed a rise in support in the polls. But whilst an outright Lib Dem win is unlikely (due to the very first past the post system that Clegg is so desperate to reform), a hung parliament is possible, with his party being able to punch above its weight.
Would this be as disastrous for the economy as the Tories make out? There hasn’t been a hung parliament in the UK for decades. Given the unfamiliarity of this possibility, people are holding their breath to wait and see. Both main parties have warned that having no decisive winner could mean the UK’s credit rating could be downgraded, due to the unpredictability of this scenario.
However, senior Lib Dems have been quick to rebut this suggestion. Former party leader Paddy Ashdown pointed out that out of the top 8 countries in the OECD (Organisation for Economic Cooperation and Development), 7 have coalition governments who have managed to make a decisive response to the economic crises. Further, he pointed out that Greece’s majority government has not really done it many favours.
Political stability is a key factor that is taken into account when investors choose a place to grow their money. Not only does a change of government threaten tax changes, which could affect the overall profitability of the investment, but changes in the rules can bring unwelcome restrictions.
Perhaps this explains why many offshore financial centres are backwaters as far as politics is concerned, who boast about nothing happening for hundreds of years.
