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UK’s May election will create major political and economic uncertainty

Currencies
By Paul Hodges on 16-Jan-2015

UK polls Dec14Nobody can guess the outcome of the UK’s general election on 7 May.  This is astonishing, as it is only 4 months away.

Currently, it seems most unlikely that either of the main parties, Conservative or Labour, will be able to form a government on their own.  Indeed, 7 different outcomes have been identified as possible by the civil servants preparing for a new government to take power.

Equally astonishing, given the 2-party history of British politics, is that the combined vote of the minor parties is now more than either the Conservative or Labour vote, as the Financial Times chart shows.

Opinion polls are not elections, of course.  But so far they suggest that it will take a 3-party coalition to form a government – normally something only seen in wartime.  In turn, this means it is quite possible that key policies could be dictated by minority parties as their price for votes.

The position of the Liberal Democrats position highlights the uncertainty.  They are currently the minority party in the Coalition government, but are likely to lose at least half of their seats – and could lose many more.  And so they would be most unlikely to support the Conservatives again, and would probably support Labour.

Instead, the Conservatives might well  have to look for support from the UK Independence Party.  Their main policy, as the name suggests, is for the UK to leave the European Union.  They would drive a hard bargain for their votes, and a referendum on the subject would become almost inevitable.

Another remarkable development is underway in Scotland, long a Labour heartland.  Polls suggest the Scottish National Party will win a majority of seats, despite having lost the independence referendum.  They are unlikely to support the Conservatives, and might well demand a second referendum as their price for supporting Labour.

Other minority parties may also be critical to forming a government.   The Democratic Unionists from N Ireland might support the Conservatives, whilst the Greens might support Labour if it accepted their key policies.

The problem is simple to explain.  Voters no longer believe that the major parties are listening to their concerns, and are instead merely exchanging meaningless sound-bites.  Thus Labour’s leader, Ed Milliband, famously forgot to talk about the UK’s problems with the budget deficit and immigration in his keynote Party Conference speech last year.

Unsurprisingly, therefore, alienation is rising amongst the electorate.  As a result, populist rhetoric and narrow single-interest policies start to appear more attractive.  And instead of returning to the centre ground, the major parties are increasingly focusing on these minority concerns, fearing the loss of votes, and so losing even more credibility.

Thus nobody knows how the voting will go in May or what policies might be pursued by a new government.  Horse-trading for coalition votes could easily lead to outcomes that today seem most unlikely.  And some seasoned observers even suggest it may prove impossible to form a stable government, leading to new elections later in the year.