Jittery UK markets breathed a sigh of relief after the Conservatives’ unexpected election victory last week. The FTSE 100 jumped by 1.5% last Friday, coming close to its recent record peak, while sterling hit a two-month high against the dollar.
“The euphoria is understandable”, says breakingviews.com’s Swaha Pattanaik. Markets thrive on policy continuity, a stable government, and a business- and investor-friendly environment. All these now look “far more secure” than had been expected before the vote. “But it won’t last.”
“Investors may find they have simply swapped one type of uncertainty for another”, agrees Fidelity’s Tom Stevenson in The Sunday Telegraph. A key issue now will be the simmering political and constitutional tension stemming from the SNP’s clean sweep in the north and the possibility of a fresh battle for independence.
And the Scottish question “may pale in comparison” to the potential consequences of an exit from the EU. The fall in first-quarter GDP as the election neared “shows how vulnerable to political uncertainty business investment decisions can be”.
The global backdrop isn’t particularly encouraging either, adds Stevenson. US stocks, which set the global tone, are expensive, and higher interest rates may soon be on their way. So global liquidity is set to tighten, while the recent reversal in the bond markets is causing turbulence.
The FTSE 100, moreover, while not expensive, isn’t cheap either. Don’t count on “another major leg up” in the market.