As the debate about the effects a hung parliament could have on the economy continues, Fidelity International has reassured investors, saying it will not be a disaster for fixed income markets.
Ian Spreadbury, manager of Fidelity's Strategic Bond Fund, says as long as whoever is in power makes moves to reduce debt post election, it is unlikely to cause the shockwaves in the economy that some investors predict.
Fears have been mounting over the past month that the likelihood of no clear majority in parliament following the election on 6 May would lead to a period of economic uncertainty that would slow down recovery.
And with markets traditionally performing badly when there is indecision in government, many have commented that political deadlock would be disastrous for investors and the stock market, and could affect the value of sterling.
But Ian Spreadbury says that this will not be the case. He said: “In the event of a Hung Parliament, which is now looking quite likely, we would have some form of power sharing involving the Liberal Democrats. Their attitude to tackling the deficit is quite robust and so I don't think it would be a disaster for the markets; in fact it is already partly discounted.
“ I do think there could be some modest upward pressure on yields to reflect concern that it may be difficult to get a consensus on the tough decisions that would need to be made.”
He went on to say that he believes a Conservative majority could bring about a speedier recovery with their proposed strict spending cuts.
Adding: “Clearly that could slow the economy in the short run and base rates would probably stay lower for longer. Tough fiscal tightening would also likely keep the UK's AAA rating in check so a Tory win would be good for fixed income markets -particularly gilts and high quality corporate bonds.”
Despite fears about a hung parliament, all parties agree on the need to reduce the deficit first and foremost. The Tories are more focused on spending cuts whilst Labour is more focused on tax hikes.
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