Top city broker says hung parliament would help economy
Apr 29 2010 by Jonathan Walker
A leading investment manager has rubbished claims a hung parliament will damage Britain’s economy, and predicted a rise in share prices if there is no clear winner in the General Election.
The comments come as a blow to the Conservatives, who have attempted to fight off growing support for the Liberal Democrats by warning that anything other than a decisive Tory victory will threaten economic stability.
Ken Clarke, the shadow Business Secretary, has claimed a hung parliament could bring Britain to the verge of economic collapse and lead to an IMF bailout.
But the claims were flatly contradicted by Jim Wood-Smith, head of research at investment managers Williams de Broe, one of Britain’s largest investment managers. The firm’s 14 investment directors in Birmingham manage more than £1.1 billion on behalf of clients.
He told clients at an Investment Breakfast held at Hotel du Vin that markets could thrive under a hung parliament – because it would boost exports by reducing the value of sterling.
Mr Wood-Smith said: “If we get a hung parliament, there is lots of scope for the pound to fall – if it went down ten per cent it would simply return to where it was at the start of 2009. We are not talking about a sterling crisis.
“And that would be really good news for the markets.
“Everybody has forecast the FTSE to be lower at the end of the year than at the start, but I don’t see it that way.
“The FTSE will go to 6,000 sooner rather than later. And, given a choice between it going back down to 5,000 or heading on towards 7,000, I am definitely going for 7,000 … but I don’t know when. Now is a good time to invest.”
Tories say that only a decisive victory would allow them to take action to cut Britain’s massive budget deficit, which currently runs at £152.84 billion a year.
But Mr Wood-Smith claimed that a Conservative victory would actually do the most damage to the markets because getting public finances under control would bolster the pound and hit the FTSE.
However, other finance experts pointed out that markets had fallen last time there was a hung parliament.
Stephen Jones, head of Brewin Dolphin’s Birmingham office, said: “If the last hung parliament is anything to go by, investors may want to hold on to their hats.”
The FTSE All Share index fell 21 per cent after the May 1974 election which resulted in no clear victor, he said.
Mr Jones added: “If Government doesn’t get debts under control then we end up in the situation Greece is in now and it won’t matter who is in power.
“The risk in the long term is that a hung parliament means debt isn’t deal with.”
Brewin Dolphin manages £20 billion of funds for more than 130,000 private clients.
Business leaders have also warned that a hung Parliament could cost jobs. Miles Templeman, director general of the Institute of Directors, said: “While political parties agree that the deficit is a problem, there is little agreement on how it should be tackled. So it doesn’t surprise me that so many business leaders are worried about a hung Parliament.
“The risk is that there will be no agreement on the nature of public spending reductions, and that on this key issue a coalition or minority government will be paralysed.”
Polls since the first televised leaders’ debate have consistently put Conservatives in first place, but without the level of support required to win a majority of seats in the House of Commons.
Tories have responded by focusing on what they say are the dangers of a hung Parliament, including launching a spoof party election broadcast on behalf of “the hung Parliament party” promising a run on the pound and soaring interest rates.
The Institute for Fiscal Studies has accused all three main parties of failing to come clean over the scale of the public spending cuts that will be needed after the May 6 poll.
