Moody's and analysts say hung Parliament could benefit Britain

29 April 2010 | By Lee Jones

Moody’s and leading financial analysts say a hung Parliament could help the UK economy.

Tory Shadow Business Secretary and former Chancellor Ken Clarke said last week a hung Parliament would be “a tragedy” and could lead to a sovereign downgrade from AAA status.

Conservative Shadow Chancellor George Osborne warned that it might put Britain in a similar financial predicament to that seen during the last hung Parliament in 1974.

In a Chancellors’ debate on the BBC One’s Politics Show last week, Osborne said: “If markets feel we do not have the confidence to deal with our debts, we will have to call the International Monetary Fund in, it is a statement of fact. We have to be aware of the consequences of political instability.”

But Moody’s, one of the three global agencies that set sovereign ratings, says a hung Parliament may not be a bad outcome for the UK’s economy.

Moody’s lead analyst for the UK Arnaud Mares says: “We do not think that a hung Parliament will have a direct impact on the UK credit rating. If you have a fiscal plan agreed by a coalition, that could actually be quite positive because it would imply broad popular support.”

Charles Stanley analyst Jeremy Batsone-Carr says there is little material difference in the proposed macro-economic strategies of the three parties and a hung Parliament could produce a more cohesive solution to deficit reduction.

Morgan Stanley economist Melanie Baker says: “The ultimate policy outcomes may not look that different, particularly with all major parties committed to significant deficit reduction and the market itself likely to act as a disciplining force against inaction.”

Barclays Capital considers that a hung Parliament might be a blessing for the UK economy. Analyst Simon Hayes says: “A minority Government may have greater leeway to assemble a credible deficit reduction plan than one that is encumbered by expensive pre-election promises.”

Deutsche Bank strategist Jim Reid says: “We suspect that the biggest risk to the UK’s rating would be in the event of a hung Parliament that fails to produce a Government commanding sufficient confidence within the House of Commons.Without party political agreement, this scenario would mean that no credible plan would be put forward to reduce the deficit, raising the risk of the UK losing its AAA sovereign rating.”

Last week, the Office of National Statistics revealed the UK’s annual deficit has reached £163.4bn, 11.6 per cent of GDP, the biggest deficit since the end of the Second World War.

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