What the surprise Conservative win in the UK general election means for the British economy

Well, that was unexpected: “Prime Minister David Cameron swept to an unexpectedly strong election victory, securing a majority in Parliament and immediately vowing to give more powers to Scotland and let voters weigh in on whether to stay in the European Union.”

Having trained myself to express deep skepticism about exit polls — President John Kerry — I instinctively dismissed the one showing a surprise Conservative win. But actually that poll underestimated Tory strength. Reminder: An improving economy is a great political tailwind, as GOP voters realized in 2012. Here is a bit from IHS Global Insight about the economic impact of Cameron 2.0:

The election result with the Conservatives having a majority, albeit small, is being very well received by the markets. Sterling has made strong initial gains and the FTSE has followed suit. Gilts have also gained and should benefit from the fact that the Conservatives will likely be able to press ahead with their plans to reduce the deficit more quickly than Labour would have done.

The fact that the election has seemingly delivered a government that will survive for a full term – and crucially avoided the need for another general election later this year – is good for stability, which should be supportive to economic activity. There was clear evidence in the run-up to the general election that economic activity was being hampered by increased business caution due to uncertainty.

Businesses will likely be pleased overall with the result given that the Conservatives are seen as more business friendly than the other parties. However, while the markets are likely to be happy with the election result in the near-term and the economy should benefit from the more stable result than had seemed likely, questions remain further out that have the potential to be major causes of uncertainty and instability.

• In particular the EU referendum looms larger now which is likely to lead to appreciable market and business uncertainty further out.

• Relations with Scotland & effective increased influence of Conservative backbenchers are also areas of potential instability.

• In addition, the Conservatives will now need to make clear exactly where the spending cuts are going to come to meet their fiscal targets.

-0-

from AEI » Latest Content http://ift.tt/1zJSnmn