Well, that was the last thing we needed.
Just as markets are being hammered by fears over Greek debt, and concerns over weird trades on Wall Street, Britain delivers a hung parliament into the mix.
Sure, in the grand scheme of things, it might not matter – yet – quite as much as Greece going bust or China rapidly putting the brakes on – but it’s not very pleasant if you actually live here and/or get paid in pounds sterling.
We won’t know the full results until later today. But we do know that, although the Conservatives secured a big swing, it wasn’t enough. They can’t now win enough seats to get the 326 seats needed to secure an overall majority.
This really is about the worst result the market could have hoped for. If nothing else, it means that Gordon Brown gets to cling to power for at least a few days more (or longer if we’re really unlucky), trying to patch together a pact with the LibDems. So we’ve got that uncertainty to look forward to.
The best option on the table now, in terms of delivering a majority, relatively stable government, seems to be that the Conservatives and the LibDems get together. That would deliver the strongest eventual government that we’re likely to get. But that won’t be straightforward. The Tories are far less likely than Labour to give way on the whole electoral reform issue (because they’ve got the most to lose). Meanwhile, anyone who tries to form a minority government (such as a LabLib minority coalition) will have to be watching their backs all the time.
So at a time when the markets are all afrenzy about heavily-indebted countries, Britain is facing potentially weeks of uncertainty, topped off with a likely weak government, which will have to push through some of the harshest spending cuts seen in generations.
We’re not saying that turning Britain’s finances around can’t be done. In fact, it will be done, one way or another. But as we pointed out in a recent MoneyWeek magazine cover story, with the government we’re now likely to get into power, the chances are that we’ll be pushed into it by a crisis as we were in the 1970s, rather than going into it willingly and with our eyes open, as we did in the early 1920s.
As to what it means for investors – the FTSE 100 is a global index so external events matter more. The main impact for now will likely fall on sterling and the gilts market, which will jitter between extremes as various pick’n’mix parliament options are trotted out. We said before the election that we were happy to stick with defensives, gold and Japan, and avoid gilts, and this outcome gives us no reason to change that.