Labour Love-in or Tory Glory: What Works Best for the British Pound?
So too begins the ‘official’ election campaign, and whilst it remains unclear who will be Prime Minister come May 8th, there are only two real choices: David Cameron and Ed Miliband.
Given the uncertainty surrounding this election, it is unsurprising that its presence has begun to weight on the FTSE and the pound alike.
However, looking ahead, what choice, Miliband or Cameron, is best for pound sterling?
Business:
In this case, the choice is fairly obvious. One of the main issues in the pre-‘official’ election campaign has been Labour’s relationship with business, notably Miliband and Balls’ public war of words with Boots boss Stefano Pessina eating up column inches back at the start of February.
Despite launching their business manifesto on Monday, Miliband’s, and more importantly Balls’, business credentials have failed to impress the right people, a failure that could well filter down into sterling following a Labour election victory. The Tories, on the other hand, are notoriously pro-business, with the FTSE10 flush with Conservative supporters.
Tories 1, Labour 0
European Union
This is a big one. As Cameron as promised multiple times, he is committed to a referendum on the UK’s EU membership; the question is not if, but when. The date of said referendum could be dependent the role of UKIP post-May 8th (more on that below), with Farage stating he would push for a pre-Christmas vote if in a position of power; regardless, this would dwarf the already considerable pound-wobbles seen around the Scottish vote for independence.
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Labour, on the other hand, has ruled out a referendum unless there is further transfer of power to Brussels. Whilst Simon Walker may not think it is enough to please the business community as a whole, a Labour lack of EU referendum may be enough to help settle the pound’s nerves post-election.
Tories 1, Labour 1
Path to power
It is increasingly likely that both the Tories and Labour will need a bit of help to get into power, and neither of their potential bedfellows is likely to please the markets.
Whilst the Tories have a better chance of getting a majority, there is the very real possibility that they will have to turn to UKIP, dependent on the amount of seats the far-right party win, to make up a government. Obviously, as mentioned above, Farage and co. will be gunning for a referendum on Europe as soon as possible, something sure to spook the markets.
Labour, meanwhile, would likely turn to the SNP; less extreme then UKIP, sure, but still a party that only last October wanted to see Scotland separate from the UK. It is hard to call a winner here; Labour edge it because, whilst the SNP will push for more Scottish devolution, in the short term at least that won’t be as harmful as a UKIP-EU-exit push.
Tories 1, Labour 2
Economic plan
In this area both parties have been suspiciously shady. Cameron this morning was evasive on where the £12 billion in welfare cuts will be found, as well as obstinate over the location of the extra £8 billion the NHS needs. Similarly, Miliband was lacking in real information when he faced Paxman in the non-debate last week, and there has been a lot of mud-slinging between the two over each party’s respective figures, with both obscuring the facts for their own gain. In order to distinguish between the two, we turn to the Institute for Fiscal Studies.
The IFS says that whilst the Tories have been clearer in what they want to achieve with the economy, neither side has been particularly forthcoming on their methods. Due to the (marginal) difference in clarity, the Tories just take it.
Tories 2, Labour 2
Final verdict:
So where does this leave us? The parties are fairly equally matched in terms of the damage they would do, with the usual pro-business boost for the Tories being somewhat negated by their promise of an EU referendum.
The multiparty nature of this election has fractured the traditional battlegrounds for the main two parties, and this will likely be reflected following the election. One thing is (almost) certain: the pound has a tough time ahead.
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