It is official; the General Election will take place on 6 May, and despite widespread speculation over a hung Parliament, the Conservatives are still tipped to win the General Election as Ladbrokes offered odds of 1-6 on a Conservative win late last week, compared to 7-2 for Labour.
But what will the election mean for investors? Research from F&C Investments suggests that an uncertain outcome is likely to be unpopular – in the last election to produce a hung Parliament in February 1974, the FTSE All-Share Index fell 14.52 per cent in the following month.
According to Ted Scott, director of UK strategy at F&C Investments, a hung Parliament this time around would be detrimental to both the equity and gilt markets.
"Markets hate uncertainty and if neither party had a workable majority there could be a further hiatus in policy decision making. Because of the dire state of the public finances, action is required sooner rather than later and a hung Parliament would, therefore, be the worst outcome."
Meanwhile, a Conservative majority would be treated positively by the market, Mr Scott claims: "Markets would welcome a change of Government after what has been perceived as several years of economic mismanagement under the current Labour administration.
"While Labour have committed to bringing the deficit down it is commonly viewed that the Conservatives have both more discipline and the willpower to act and are, therefore, more likely to implement the necessarily austere measures that would retain the UK's AAA credit rating," he said.
On the other hand, a Labour majority would be a greater surprise, Scott claims: "The markets would probably react negatively to such a result but if the Government did respond with an austere emergency Budget, markets should recover much of their losses," he said.
Overall, the election has come at a bad time for the economy and markets, because of a lack of key policy decisions ahead of the election, "This will only increase the risk of a financial crisis developing that may involve the economy lapsing back into a recession.
"The reaction of the markets following the election depends on the outcome achieved, but even a hung parliament may not be bad news for markets if a working relationship is put together with the Lib Dems that enables decisive Government," Mr Scott adds.
© Fair Investment Company Ltd