Today, Labour will announce that they will be holding a general election on Thursday 6th May 2010. This election is likely to play a big part in the direction of the UK markets. In terms of what it means to investors, first let’s look at the three likely outcomes:
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The Tories win
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Labour wins
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Nobody wins meaning a hung parliament ensues
Which of the above is the most probable to occur? Recent polls have shown the Tories to have a 10pt lead over Labour which would give them victory. Though victory is not yet assured and the Tories need to keep up this big margin to be assured of victory, which will not be easy. Especially with the wild card television debates coming into play this year (also the Tories need a big lead to win, the 10pts is not as big a lead as it appears, as if it drops back down by a few points fears of a hung parliament could re-emerge).
To discuss briefly what the main plans of the parties are, which parties have the backing of the main business groups and how the Pound will likely fare in each of the above scenarios:
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The Tories win - The Tories plan to cut the deficit quicker than the other parties, revoke the N.I. rise that labour have brought in and cut corporation tax to 25% by 2011, also they plan to cut the deficit via spending cuts rather than tax. The markets and business leaders do seem to favour the Tories over Labour currently, thus if they win it is likely that sterling will strengthen.
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Labour wins – Labour have been a lot more coy about what their exact plans are, and seem to have fallen out of favour with the markets via being so coy, but what we do know is that they plan to cut the deficit at a later point than the Tories, and they plan to cut it via tax rises rather than spending cuts. As businesses and the markets seem to favour the Tories currently, if Labour win, it is likely that Sterling will stay under pressure until the markets gain more confidence in Labour, and Labour…
