Video: What Tories and the City make of Corbyn’s victory

Veteran left-wing MP John McDonnell will be shadow chancellor
Veteran left-wing MP John McDonnell will be shadow chancellor
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City figures have reacted with a mixture of caution and dismay to Jeremy Corbyn’s election as Labour leader.

His appointment of John McDonnell - who favours nationalising banks - to the key post of shadow chancellor is likely to add to the alarm in some quarters over the prospect of a Corbyn government.

Others have focused on the more immediate influence Mr Corbyn is likely to have as leader of the opposition ahead of the referendum on Britain’s membership of the European Union, given his apparent lukewarm stance and previous scepticism.

A Conservative attack video posted on YouTube says Mr Corbyn’s Labour represents a “threat to Britain’s security”.

The footage highlights comments by Mr Corbyn describing the death of Osama bin Laden as a “tragedy” and referring to “friends” in Hamas and Hezbollah.

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The Tory video also features comments from Mr Corbyn questioning the need for the UK to have advanced military equipment and stressing his opposition to replacing the Trident nuclear deterrent.

It is the latest indication of the strategy the Conservatives will use to target the new leader of the Opposition, following Prime Minister David Cameron’s claim that Labour “is now a threat to our national security, our economic security and your family’s security”.

Financial markets have yet to be troubled by the events shaking up the top of the Labour party - with investors more occupied with immediate concerns over US interest rate policy and a Chinese slowdown.

Mainstream business groups issued cautious statements over the weekend with the British Chambers of Commerce and Institute of Directors (IoD) both congratulating Mr Corbyn.

IoD director general Simon Walker said some of his policies would “undermine our open and competitive economy” but seized on a comment of the new leader’s with which the body agreed - that “wealth creation is a good thing”.

The City’s in-house newspaper, the Financial Times, has already weighed in with an editorial calling the new leader a “disastrous choice”.

It cited Mr Corbyn’s views on nationalising railways and utilities and removing the private sector from public services as well as possibly forcing the Bank of England to boost the economy “regardless of the effect on inflation”.

Nigel Green, founder of financial advice company deVere Group, said: “The victory of this hard-left socialist as leader of Her Majesty’s Opposition is, I suspect, going to prove to be a major issue for global investors.

“So-called Corbynomics, whereby everyone would pay more tax to pay for hugely increased public spending, would backfire spectacularly.”

Mr Corbyn’s appointment of Mr McDonnell would cause alarm bells in financial markets should he ever appear to have a serious chance of entering Number 11.

The new shadow chancellor “calls for public ownership and control of the banking system to take control of our casino economy”, according to his website.

But Societe Generale analyst Michala Marcussen said: “One of the more pressing issues to our minds is what stance Labour will take on the EU referendum that Conservative Prime Minister Cameron has promised before the end of 2017.”

She cited Mr Corbyn’s previous opposition to EU membership, adding: “Today, his attitude to the EU is best described as lukewarm and it is uncertain at this stage how he will campaign in the upcoming referendum.”

HSBC economist Elizabeth Martins said Mr Corbyn’s election was “unlikely to have an immediate or direct impact on the UK policy environment” given the Tory lead in the polls and with the Government’s term not expiring until 2020.

“However, as leader of the largest opposition party, his voice will be an influential one, particularly given the narrowness of the Government’s majority,” she added.

“While the statistics bear out his views that inequality in the UK is high, spending cuts on public services have been sizeable and zero hours contracts have risen sharply, it remains to be seen exactly how his policies would work in practice.

“The concern will be that his plans to increase spending not only reverse the improvement in public finances in recent years, but could potentially lead to higher inflation as well.”