The elections in the United Kingdom, which should take place next May 6, two weeks after the release of UK GDP (Q1), will be a key moment for the prospects of financial markets in the short and medium term.
For Alastair Newton, an analyst at Nomura, the importance is not really know which party wins the election. Who, incidentally, is very uncertain, between Labor Outgoing Prime Minister Gordon Brown, rather unpopular Conservative leader David Cameron and Nick Clegg centrist leader of the Liberal Democrats, who could eventually play the role of arbitrator. The Sunday Times poll in late February was found to reveal a margin of only 2 points for the Conservatives to Labor.
The issue – economic – is rather whether "the extent to which a party could win, especially when the new government will tighten its fiscal policy." The scenario of a hung parliament is currently the most likely.
But, whatever the configuration of the new government, he will have to tighten policy to "get on track the UK public finances." According to recent estimates, the deficit of the United Kingdom should reach 12% of GDP in 2010 and the debt has increased from 40% to over 60% of GDP between 2008 and 2009.It could reach more than 90% in 2015!
A hung parliament would not be good
If a consensus seems to be established on public finances, the consequences of a hung parliament would be rather negative, according to Nomura, which follows the words of Professor of Economic Policy at the London School of England, Willem Buiter, "Fiscal tightening may be rejected, markets and pound attack, and triple AAA country could be threatened. "
But the British currency has been suffering for several weeks. Just since January, the cable (the exchange rate between the "pound" British and U.S. dollar) has won more than 7%.This Friday, the ranking below 1.5 dollars for a pound.
In warning the country's deficits (as well as France and Spain), the rating agency Fitch has crushed a little more money into this weekend.
The pound sterling in the spotlight
"Normally, elections have a lasting impact on exchange rates. But in the case of the latter, the effects could be cumbersome, lengthy and complex, "according to the office. Everything depends on tax policy, how it could be put in place – lower costs and / or raising taxes – how fast and how far it is credible.
For Nomura, foreign exchange markets would prefer a clear victory for one party because it "would decrease the risk premium" of the pound sterling, which would incorporate and colors."This effect would be accentuated if the Conservatives win the" pound could rise by 4% in a month, depending on the broker's forecasts.
But from a macroeconomic perspective, fiscal policy will, whatever happens, strongly constricted. This will have a negative impact on the currency, called "significant" or "substantial" by Alastair Newton.
In other words, the book should still be penalized in the coming months. A return to $ 1.4? Economists consider such a fall. Especially if no majority stands in Parliament, which seems the most likely scenario now. The pound could slip further to 7%, according to estimates by Nomura.
Interest rates low long
Monetary policy side, there is little suspense.The speeches of members of the BoE (Bank of England) is not really optimistic, while Britain saw its longest recession in more than 50 years. Mid-March, the Committee has kept its rate unchanged at 0.5% last year, and does not seem to move towards a tightening before the end of the year, according to Howard Archer, economist at IHS Global Insight.
Moreover, inflationary pressures begin to worry: in January, consumer prices have emerged up 3.5% over one year, or more than one point above the 2% fixed as ceiling, because of a return of VAT to its standard level, higher oil prices and the impact of the decline of the pound sterling on import prices.
Mervyn King, head of the BoE immediately explained that the surge was "temporary" and that excess production capacity in the economy should reduce inflation to acceptable levels in the medium term, even below the target.
Equity markets maintained