Election results ‘well received’ by markets

David Cameron looks set to stay at Downing Street.
David Cameron looks set to stay at Downing Street.
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The General Election results have been very well received by the markets, according to leading economist Howard Archer.

Mr Archer, who is the chief UK and European economist at IHS Global Insight, said that sterling has surged and other markets are likely to follow suit.

Gilts are likely to benefit from the fact that the Conservatives are likely to be able to press ahead with their plans to reduce the deficit more quickly than Labour would have done, Mr Archer said.

He added: “The fact that the election has seemingly delivered a Government that could well survive for a full term – and crucially avoided the need for another General Election later this year – is good for stability which should be supportive to economic activity. There was clear evidence in the run-up to the General Election that the economic activity was being hampered by increased business caution due to the uncertainty.

“Businesses will likely be pleased overall with the result given that the Conservatives are seen as more business friendly than the other parties. However, while the markets are likely to be happy with the election result in the near-term and the economy should benefit from the more stable result than had seemed likely, major questions remain further out that have the potential to be major causes of uncertainty and instability.”

In particular the EU referendum looms larger now which is likely to lead to appreciable market and business uncertainty further out, Mr Archer said.

He added: “Relations with Scotland and the effective increased influence of Conservative backbenchers are also areas of potential instability. In addition, the Conservatives will now need to make clear exactly where their cuts are going to come to meet their fiscal targets.”

Bill O’Neill, the head of the UK Investment Office at UBS Wealth Management, which has an office in Leeds, said: “The odds were stacked against such a decisive outcome. This result is far less complicated than the markets’ worst fears. But we are still dealing with a government with a miniscule working majority at best. Once people acclimatise to the certain outcome eyes will immediately turn to the challenges lying ahead. Brexit and Scoxit will now become chief concerns.

“The question on politicians’’ lips will be ‘can the newly vindicated Cameron hold the line against a resurgent set of backbenchers?’. The UKIP rise has been substantial and this sends a clear anti-EU message. Without the Lib Dems in place to water down opposition, a more robust approach on the EU Referendum could emerge.

“Markets will respond swiftly today and in the coming days. With certainty will come a renewed confidence from investors in a more stable and transparent policy climate. For now, let’s enjoy the relief rally.

A renewed commitment to austerity should support gilts.

“Sterling will, in our view, be moved by a number of different factors in the coming days and weeks. It could hold the initial gains following the astounding exit polls last night but the Brexit and Scottish devolution debates might influence the path of the pound quicker than we think.

“The good news is that the current fiscal trajectory remains firmly in place. Importantly, the Bank of England will not be confronted by a change in the fiscal framework.

“There could be clouds on the horizon for the UK economy if growth momentum is seen to have slowed, but broadly the economic context is relatively bright.”