The People Have Spoken

08/05/2015 at 4:21 pm

The bookies were wrong; the pollsters were wrong; the politicians were wrong. The chaos that everyone had expected did not break out and David Cameron has become the first Conservative politician to win a British general election since April 1992.

Before moving on to the market implications of this I hope readers will forgive some brief political notes by party, in vote share order, on this remarkable day.

  • Conservatives (36.9% of the vote, 331 seats): Remember that they achieved their shock victory despite the failure of boundary reform during the last parliament.
  • None Of The Above (33.9%, 0): Turnout was the highest it has been since 1997, meaning that Mr Cameron secured the backing of the highest proportion of the electorate at 24.4% since Mr Blair that year (who ran to 30.8%).
  • Labour (30.4%, 232): resurrecting Old Labour helped bring back a Kinnock-era result with the fewest seats won since 1987.
  • UKIP (12.6%, 1): combine this Thatcherite party’s share of the vote with that of the Conservative party and you get the biggest result for the political right since 1955.
  • Liberal Democrats (7.9%, 8): Once people realise you actually are in the middle of the road – rather than on both sides at the same time – you really will get run over.
  • SNP (4.7%, 56): Let us cast our minds back to 1885 and hope that Mr Cameron manages a proper settlement with Scotland as Mr Gladstone tragically failed to do with Ireland.

The market reaction so far has been unsurprising: the passing of uncertainty is positive. At the time of writing the pound is up about 1% against the dollar and 1.5% against the euro. The FTSE 100 is also higher, as is the gilt market, but in both cases this is no more than in line with market movements across Europe. (The election result might have come as a surprise but the confinement of reaction to the currency is one consensus expectation which appears to have been borne out.)

Looking forward it is difficult to identify any material economic change which might arise from Mr Cameron’s majority; indeed, economic continuity was the key selling point of his campaign. There is perhaps a greater chance of such activity as the deregulation of small business. On the other hand, there seems little chance that (say) the HS2 project will be derailed or the bank levy abandoned. And in any case the country’s enormous debt burden means that the budgetary arithmetic will be dominated for some time by a coalition between interest rates and the Retail Price Index.

One issue which has attracted the interest of the commentariat is The European Question. A referendum on Britain’s EU membership is now promised for 2017 and efforts are being made in some quarters to worry about this. The behaviour of markets in the recent past, however, should be enough to remind us that two years is a long time, and it is inevitable that there will be other things to worry us in the meantime.

Perhaps the only reasonable conclusion is that there is not much to see here in terms of the financial outlook. After all, it was the opinion of this blog some time ago that even the chaotic election result envisaged then would not provide markets with much excitement. Kudos to Mr Cameron for securing victory against the odds; and forward, now, to business as usual.

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