Neville Prior 2 March 2010 09:22:42
So the pollsters tell us, the Conservative lead is, if not tumbling, reducing. As this happens, the pound falls, and the cost of UK government debt increases. Traders are concerned about a hung parliament, and nobody actually being in charge of the country. Uncertainty in politics breeds crisis!
That aside, there are other reasons for traders to feel nervous. The governor of the Bank of England was quite dovish in his comments a week ago, (see earlier in the blog), and this could lead to lower interest rates for a while to come. If this is contra to expectation, then that will cause the pound to fall. On top of that, economic momentum is not exactly rushing, so investors continue to worry.
Even if the Conservatives win, and uncertainty is lifted, what will happen? Fiscal tightening will start earlier and with more "oomph" than if labour win. This would likely bring lower short and long-term interest rates, and a more "competitive" pound. The Tories are putting their money behind an export led recovery in other words.
..............and if Labour win, surely the pound will go up? Very unlikely, because although they are unlikely to be as "tight" as the Conservatives, they need all the same things, it is just that they are likely to happen anyway, if slower!
In other words the pound will weaken!!!!!!!!!!