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The impact of a hung Parliament for markets

F&C director of UK strategy Ted Scott says the UK risks losing its AAA rating status if it does not offer a credible plan to tackle the high budget deficit following the election.

Scott says that the leaders of the respective parties need get together to arrange a decisive administration as the nature of global financial system means that if banking operations in Europe seize up over sovereign debt concerns it will quickly impact other continents.

He says: “The UK is particularly vulnerable because of its large debt to GDP ratio and annual fiscal deficit that is not much smaller than Greece’s.”

Scott says the last hung Parliament in 1974 led to significant underperformance in markets and once Labour gained power later that year equities fell another 20 per cent.

“This was the time of industrial strife and high inflation caused by the Middle Eastern oil crisis that culminated in the UK eventually seeking aid from the IMF so the economy and the country were in a major crisis. However, it has a certain resonance today with Greece having just been bailed out with the help of the IMF and the UK once again has severely strained public finances at a time of a major sovereign debt crisis.”

BNP Paribas UK economist Alan Clarke says the UK has effectively voted for a downgrade because he warns there is now more than a 50 per cent chance of the UK losing its AAA status. He says: “A downgrade looks to be the most likely outcome. The new Government is likely to be weak at best. Even in the case of a coalition the partners will be constantly looking ove their shoulders and comprimise politics will mean that the scope for delivering radical or unpopular fiscal tightening is limited.”

Meanwhile, Hamptons International head of sales Marc Goldberg says he does not expect the announcement to impact property market confidence.

He says that although it is still unknown which details in the various party manifestos will be implemented within the property market, it is likely that it will be other market forces that impact general sentiment.

He says: “Our March figures showed that activity has returned to pre-crunch levels and we have not seen the predicted lull in the market pre-election.  As a result, regardless of the outcome of a hung parliament, we expect key property market drivers, such as low interest rates and a weak pound, to continue to encourage further demand from both UK and overseas buyers.”

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