Hung parliaments: two scenarios which could disrupt the markets

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Speaking to the BBC's Daily Politics Show, Ewen Cameron Watt from Blackrock Investment outlined the two scenarios that could negatively impact the markets.

It looks as if the UK will be faced with another hung parliament and the government will be made up of a coalition of two or three - or even more - parties - or the country will have a minority government with a confidence and supply deal or one with a vote by vote on an issue by issue basis.

In the interview Mr Watt said that coalitions themselves will not disrupt the markets but “extreme” cases could do so. His comments came on the day in which the Times published an article entitled: “Panic in the markets as poll jitters hit sterling”.

Speaking to the Daily Politics he said that “the equity market is kind of ignoring it for the time being” and that “the currency market is showing a considerable fright and has been for a few weeks now.”

He outlined the two scenarios which would be most disruptive:

Conservative led government with an upcoming EU referendum

Mr Watt said that a Tory led government, “which would then lead to speculation about the whole Brexit referendum” could hurt the markets.

An EU referendum held in 2017 after renegotiation could harm the markets due to it being kicked into the long grass, causing uncertainty in the short run. However, if Nigel Farage got his way and managed to get a quick EU referendum this year then some of this damage could potentially be mitigated. A quick referendum would decide the question of EU membership once and for all. Then again such a referendum could also cause instability in the short run.

Government involving or supported by the SNP

He also said that a Labour minority with the SNP having material influence on policy, which would get people concerned about the first separatist party since 1885” could destabilise the markets.

The general election will not result in another independence referendum, but if the SNP do have influence and continue to do well in Scotland then the proposal of another Scottish referendum - which would cause more uncertainty - could emerge in a few years as a direct result. This would cause more uncertainty for the future of Scotland and the UK and could eventually destabilise the markets.


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