Three big political issues still cloud our economic outlookby Anatole Kaletsky / May 8, 2015 / Leave a comment
Although the Conservative victory has come as a huge surprise, it does not change anything very much about the UK’s economic or financial prospects. In that sense the absence of any big reaction in the financial markets is understandable. The pound and the stockmarket would have fallen steeply as a result of a hung parliament—and that was certainly what I expected (and predicted throughout the campaign). But now that the prospect of extreme political instability is off the agenda, at least until the EU referendum, the election outcome does not alter economic prospects either for better or worse.
In this sense the election has turned out to be a very asymmetric event. If it had gone as the polls as the polls predicted—and as I certainly expected—Britain would have become a very unstable and unpredictable country. Now that the polls (and I) have been proved wrong, while the markets have been proved right rather than “complacent”, nothing much changes.
From this point of view, it makes sense that the pound and the stockmarket have not moved much in the past 24 hours, one way or the other.
Nevertheless, as businesses and investors get over their surprise (and relief since most had been hoping against hope for a Tory triumph), they will realise that economic outlook for Britain is still clouded by at least three big political issues:
1. How well Cameron manages to govern with a very small majority (similar to Harold Wilson in 1974) and no allies from other parties.
2. How the Scottish Question interacts with Engl…