Tories Win Election But Look to be Some 21 Seats Short of Overall Majority
From John Ryding:
Although the results are still being tallied, it is clear that David Cameron’s Conservative Party won more votes and more seats than any other party but will be short of the 326 seats needed for an overall majority. As of now, the Tories have won up 302 seats (a gain of 94) and 36% of the popular vote. Gordon Brown’s Labor Party have 256 seats (a loss of 12) and 29% of the popular vote. Telegenic Nick Clegg’s Lib Dem party has only 56 seats despite his strong performance in the debates (a loss of 5 seats) and 23% of the popular vote. There are still 9 seats undecided, but the Conservatives need 24 seats for an overall majority. The result is the first hung parliament (where no one party has an overall majority) since 1974. If the Conservatives had won 326 or more seats, the moving trucks would already be at Number 10 Downing Street (unlike the U.S., there is no transition period). But what happens now?
At the moment, Gordon Brown is still the Prime Minister and, unless he steps down, will remain so until it becomes clear that he does not have enough votes to govern. However, with the Conservatives winning both a larger number of seats than Labor and a larger share of the popular vote, David Cameron is preparing to put together a minority government. Gordon Brown is likely to seek an alliance with the Lib Dems but projections would put the combined number of seats in such a coalition pact at only 315, which is still 11 short of a majority. Moreover, Lib Dem leader Nick Clegg has said that David Cameron should have the opportunity to form a government since he won more seats than any other party. The only potential majority government would be a Conservative alliance with the Lib Dems but this is unlikely because a likely precondition for the Lib Dems would be electoral reform in the direction of more proportional representation, which the Conservatives are opposed to.
Shades of 1974
This is all very familiar stuff (well if you are British and over 50!). In February 1974, amidst very troubled economic times, Harold Wilson’s Labor Party won more seats (301, which was 17 seats short of a majority) than Ted Heath’s Conservatives (297). However, the incumbent Conservatives attempted to form a coalition with Jeremy Thorpe’s Liberals (14 seats) but the deal fell through because Heath was unwilling to agree to electoral reform. Four days after the election Harold Wilson formed a minority government. However, the government proved unworkable and another election was held in October, in which Labor won a very small majority.
For the Markets
Markets hate uncertainty and the lesson of 1974 is that uncertainty is going to be around for a while, even after a government is formed. Given the position of U.K. government finances, decisive action is need to cut spending and reduce the fiscal deficit, but with no government likely to have an overall majority (and we think the most likely is a minority Tory government with Cameron as P.M.), decisive action is going to be difficult. It is quite possible that there will be another election later in the year with Cameron asking the nation to give him a governing majority to tackle the country’s problems. In the meantime, this likely means higher gilt yields, weaker sterling, and lower U.K. equity prices, especially with the winds of fiscal contagion blowing from across Europe from Greece.
While these are serious matters, for light relief we offer the following clip from Monty Python on their take on British Election night—swingometers and all—please watch only if your corporate policies and sense of humor allow: