Saturday 8 May 2010

General Election 2010: the markets are in no mood for horse-trading

For once, both the markets and the polls had it right: hung parliament, Tories with the most seats, no clear majority; LibDems to hold the balance. It was the result markets had priced in for weeks, so you might have expected a pretty mild reaction yesterday.

But whether it was the pall cast by the Greek sovereign debt crisis, or merely cold, hard reality biting, Friday's result could hardly have gone down any worse. As the prospect of days, if not weeks, of uncertainty, of the lack of a government, dawned on investors they responded in the only way they knew, and dumped anything with a UK hallmark. These were not Black Wednesday-style collapses in sterling and gilt prices, but they were enough to send a potent reminder to policymakers: there is no patience for horse-trading in the face of the biggest budget deficit in modern history. more...

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