Britons go to polls today
Thursday, 6 May 2010
LONDON, May 5 (AFP): Economists and investors are anxiously watching Britain's elections Thursday, amid fears an uncertain result could send stocks and sterling plunging -- even if risk has already been partially priced in.
The pound slumped in March when it was first suggested that no party would win an outright majority -- a scenario that is looking increasingly likely as polls put the Conservatives ahead but still short of a parliamentary majority.
The currency has since stabilised but the risks remain, while stock markets have a history of responding badly to uncertainty and any delays in tackling Britain's budget deficit due to coalition talks could spook investors.
On the flip side, the markets have had weeks to adapt to the idea of a hung suggest the bail-out of debt-ridden Greece has caused a bigger financial shock than any political events in London could do.
Conservative business spokesman Ken Clarke has been leading the doomsday predictions, warning a hung parliament could see sterling "wobble" and delays in tackling the deficit could prompt action by the International Monetary Fund (IMF).
"Fooling about with multi-party debate in what we call a hung parliament will be the equivalent of fiddling while Rome burns," he said.
Whoever wins the election, the priority will be to cut the deficit, which stands at 163.4 billion pounds (247 billion dollars, 189 billion euros), or 11.6 per cent of gross domestic product (GDP) -- the highest level since World War II.
Britain only emerged from a long recession at the end of last year, and the 0.2 percent growth in the first quarter of 2010 was lower than expected.
With an eye on the Greek crisis, Prime Minister Gordon Brown's Labour party, David Cameron’s Conservatives and Nick Clegg’s Liberal Democrats have all pledged tough action to cut the deficit, although only the Tories would begin this year.
Alastair Newton, senior political analyst at Nomura, said the agreement on what needed to be done was crucial, saying: "Fiscal policy is likely to be very tight whatever the election outcome."
The latest polls suggest the Tories will win the most seats in Thursday's vote, but Labour could stay in office if there is no clear winner while both jockey for support to form a government.
Differences over whether to cut spending or raise taxes could be crucial in the subsequent negotiations.
A FT Syndication Service report by Norma Cohen and Peter Marsh adds: The winner of general election in the UK to-day (Thursday) will inherit an economy already showing signs of a strong recovery, with manufacturing output and exports expanding at the fastest rate in 15 years in April, according to a closely watched survey.
The CIPS/Markit Purchasing Managers' Index showed that manufacturing in April jumped to the highest level since September 1994. Also, the reading for March was revised upwards.
Signs that recovery is deep and broad-based were evident in other areas. Employment growth rose in April to its highest level since February 2007.
"Manufacturers reported a flying start to the second quarter, with the weak pound boosting export growth to the fastest for at least 15 years," said Rob Dobson, economist at Markit.
Mr Dobson added that the data pointed to manufacturing output growing by as much as 2.0 per cent in the past three months, a growth level that suggests the sector will make a strong contribution to second-quarter gross domestic product growth.
However, anecdotal evidence from individual manufacturers creates a more nuanced picture. Kirby Adams, chief executive of Corus, the steelmaker, described the economy as "still extremely weak".
"The indications of growth are so weak that it could take us 20 years to get out of this recession properly, unless we find some way to promote real economic expansion," he said.
The PMI survey also pointed to pressures building within the system. Input prices for raw materials, such as the steel that Corus supplies, surged at their fastest rate since August 2008.
The pound slumped in March when it was first suggested that no party would win an outright majority -- a scenario that is looking increasingly likely as polls put the Conservatives ahead but still short of a parliamentary majority.
The currency has since stabilised but the risks remain, while stock markets have a history of responding badly to uncertainty and any delays in tackling Britain's budget deficit due to coalition talks could spook investors.
On the flip side, the markets have had weeks to adapt to the idea of a hung suggest the bail-out of debt-ridden Greece has caused a bigger financial shock than any political events in London could do.
Conservative business spokesman Ken Clarke has been leading the doomsday predictions, warning a hung parliament could see sterling "wobble" and delays in tackling the deficit could prompt action by the International Monetary Fund (IMF).
"Fooling about with multi-party debate in what we call a hung parliament will be the equivalent of fiddling while Rome burns," he said.
Whoever wins the election, the priority will be to cut the deficit, which stands at 163.4 billion pounds (247 billion dollars, 189 billion euros), or 11.6 per cent of gross domestic product (GDP) -- the highest level since World War II.
Britain only emerged from a long recession at the end of last year, and the 0.2 percent growth in the first quarter of 2010 was lower than expected.
With an eye on the Greek crisis, Prime Minister Gordon Brown's Labour party, David Cameron’s Conservatives and Nick Clegg’s Liberal Democrats have all pledged tough action to cut the deficit, although only the Tories would begin this year.
Alastair Newton, senior political analyst at Nomura, said the agreement on what needed to be done was crucial, saying: "Fiscal policy is likely to be very tight whatever the election outcome."
The latest polls suggest the Tories will win the most seats in Thursday's vote, but Labour could stay in office if there is no clear winner while both jockey for support to form a government.
Differences over whether to cut spending or raise taxes could be crucial in the subsequent negotiations.
A FT Syndication Service report by Norma Cohen and Peter Marsh adds: The winner of general election in the UK to-day (Thursday) will inherit an economy already showing signs of a strong recovery, with manufacturing output and exports expanding at the fastest rate in 15 years in April, according to a closely watched survey.
The CIPS/Markit Purchasing Managers' Index showed that manufacturing in April jumped to the highest level since September 1994. Also, the reading for March was revised upwards.
Signs that recovery is deep and broad-based were evident in other areas. Employment growth rose in April to its highest level since February 2007.
"Manufacturers reported a flying start to the second quarter, with the weak pound boosting export growth to the fastest for at least 15 years," said Rob Dobson, economist at Markit.
Mr Dobson added that the data pointed to manufacturing output growing by as much as 2.0 per cent in the past three months, a growth level that suggests the sector will make a strong contribution to second-quarter gross domestic product growth.
However, anecdotal evidence from individual manufacturers creates a more nuanced picture. Kirby Adams, chief executive of Corus, the steelmaker, described the economy as "still extremely weak".
"The indications of growth are so weak that it could take us 20 years to get out of this recession properly, unless we find some way to promote real economic expansion," he said.
The PMI survey also pointed to pressures building within the system. Input prices for raw materials, such as the steel that Corus supplies, surged at their fastest rate since August 2008.