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Conservative election win leaves City of London relieved

With U.K. Prime Minister David Cameron staying in charge, defeating Labour's bonus-taxing Ed Miliband and sidelining the Tories’ Liberal Democrat coalition partners, bankers’ wallets will be a little safer.

On 7th May’s general elections the Conservatives reached the 326-seat threshold that allows them to ditch their Liberal Democrat coalition partners and govern alone in the 650-seat Parliament.

With all electoral districts declared, the Conservatives took 331 seats to 232 for Labour, and the Liberal Democrats just 8 seats. Miliband and Nick Clegg, the Liberal Democrat deputy prime minister in Cameron’s first term, resigned as leaders of their respective parties before the final results were announced.

The result is a vindication of the Tories’ campaign based on their record of producing an economic recovery and cutting a record budget deficit. That same austerity agenda was rejected by the Scottish National Party of Nicola Sturgeon, whose surge reopens doubts over the integrity of the U.K. just 8 months after Scots voted “No” to independence.

With Cameron immediately renewing his pledge to hold a referendum on British membership of the European Union, the result throws up questions about Britain’s constitutional future. For now, the surprise victory was welcomed by markets, with stocks and the pound rallying as it became clear Cameron had defied forecasts of a hung parliament to easily defeat Ed Miliband’s Labour Party and govern alone.

“I truly believe we’re on the brink of something special in our country,” Cameron, 48, told reporters outside his 10 Downing Street residence on Friday. “Our manifesto is a manifesto for working people and as a majority government we will be able to deliver all of it.” That includes an “in-out referendum on Europe,” he said.

Armed with a parliamentary majority, Cameron will be free to pursue his party’s policy platform including reductions in inheritance and income tax as well as the chance for tenants to buy their homes from non-profit housing associations. He’s also planning 30 billion pounds ($46 billion) of fiscal consolidation, with cuts in welfare spending.

U.K. stocks, bonds and the pound gained on Friday. The FTSE 100 (Financial Times Stock Exchange)  Index rallied 2 %, one of the biggest gains among European markets, led by British lenders Lloyds Banking Group Plc and Barclays Plc.

At the same time, the pound pared earlier gains as investors considered the prospect of a referendum on Europe. The in-out vote “increases uncertainty over the economic outlook for the U.K.,” said Greg Gibbs, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “The debate over EU membership is likely to come up pretty quickly and could prove a significant distraction for business and government,” he said.

All in all, recent election saw Conservative Party of David Cameron win an unexpected majority in the face of a surge in nationalist support in Scotland. Due to his policy beneficial to entrepreneurship and prompting economic recovery, stock market and pound gained. Despite future debatable referendum on U.K. membership in EU, present situation in the country is going to be even more favorable for business.

 

 

Anna Maximova, PhD in economics

(adopted from Bloomberg business news)