Hung Parliament Reality Check
Is the fear of a hung parliament actually greater than the reality?
Sterling has suffered greatly over the last month as focus on the General election has increased the anxiety and uncertainty of a hung parliament and the perceived inherent problems that could bring to action on fiscal tightening. But what if there were a hung parliament? This is not 1964 or 1974 where political party policies were as diverse as possible, it is 2010 and the main party’s aims and views are much more aligned. There has already been suggestions of cross party unity on major issues such as Afghanistan and if the economy of the UK is taken anywhere near seriously enough all parties would have discussed and agreed on behaviours should the minority governance occur and how they would work together to ensure stable and sustainable governance on at least the policy of the economy. The thought that a hung parliament would hamper the process of legislation isn’t a reality if the three major parties accept their responsibilities; in fact it could effectively speed up the process if broad agreement has been reached beforehand.
The real problem is not one of who wins the election but on the timing, speed and intensity of fiscal tightening and whether that would cause a collapse in confidence or a rise based on tough and sustainable measures being put in place to ensure the deficits being cut sharply and the debt to GDP ratios plateauing or even falling. The likelihood of this happening is good regardless of the make up of the government and so the possibility of the UK freefalling back into recessionary status appears remote. Although not out of the woods yet Sterling will undoubtedly recover from this recent unnecessary sell off but until reality rather than guesswork hits home it may have to bide its time.