FTSE 100 surges after poll result

Published: Friday 8th May 2015 by The News Editor

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The FTSE 100 Index surged by as much as 2% today after a better-than-expected election performance for the Conservatives cheered the City.

London’s top-flight climbed by nearly 150 points in early trading adding almost £40 billion to its total value as investors welcomed the prospect of a smooth transition for David Cameron into a second term in Downing Street.

British Gas owner Centrica was a big winner, rising 8% after Labour’s defeat dispelled the possibility of an energy price freeze and tighter regulation.

House builders also performed strongly, with Persimmon up 7% and Barratt Developments climbing 6%.

UK-focused banks, who may also have feared intervention by a Labour-led administration, did well too, with state-backed Lloyds Banking Group adding 7% and Royal Bank of Scotland, 80% owned by the taxpayer, surging 6%.

Emerging poll results also boosted sterling, with the pound climbing to its highest level against the US dollar since late February – though some of the gains later faded – and also ahead against the euro.

The FTSE 100’s rally saw it add around 76 points in the first few moments before quickly advancing further on the buoyant sentiment.

Vicky Redwood, chief UK economist at Capital Economics, said: “With the Conservatives on course to achieve – or at least get very close to – a majority, the UK General Election result is a surprisingly market-friendly outcome.

“The result removes the risk that the economy suffers a prolonged period of political uncertainty – indeed, the pound has risen by about 2% against the euro.”

Markets were buoyed by the prospect of Mr Cameron swiftly emerging as Prime Minister again, easing fears of a chaotic few weeks in Westminster should no clear winner have emerged.

Sentiment was also lifted by the prospect of no change to tax and spending policies and the disappearance of the spectre of an uneasy parliamentary arrangement between a minority Labour government and the Scottish National Party.

Mark Dampier, head of investment research at Hargreaves Lansdown stockbrokers, said: “Business as usual might be the order of the day from this election result.

“In 1992 when we had a similar surprise success, markets reacted strongly and I would expect to see the same again.

“Looking further ahead, there are uncertainties which may affect investors, such as a new legislative programme, the strength of the SNP in Westminster, and the question of a referendum on Europe.”

Scotiabank’s Alan Clarke said the result should mean “the half-finished job of closing the budget deficit and getting the Government debt burden on a downward burden can be continued”.

However he said the biggest market concern over the next two years would be the prospect of an EU referendum as promised by Mr Cameron. Meanwhile, the UK looked set to face the “mother of all fiscal tightenings in about a year’s time”.

HSBC economists Simon Wells and Liz Martins pointed to wider implications of the result from the looming uncertainty over Europe complicated by the SNP surge to dominance in Scotland.

They said: “There are two big medium-term implications of the probable result. First, a referendum on EU membership by end-2017 now seems much more likely.

“The economic implications of a possible British EU exit could be far-reaching and the BoE [Bank of England] may soon be turning its attention to the regulatory and financial stability implications of such a scenario.

“Second, the huge gains made by the SNP once again call into question the future of the UK itself. If Scotland were to vote to stay in the EU, but the rest of the UK were to opt to leave, pressure to break up the union could increase further.”

Published: Friday 8th May 2015 by The News Editor

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