Labour-SNP victory would raise interest rates, warns top bank

HOMEOWNERS could face an early rise in interest rates if Ed Miliband is propped up in Downing Street by the SNP, a major bank warned last night.

US giant Morgan Stanley said the prospect of a Labour government reliant on the Scottish Nationalists would create the ‘greatest uncertainty’ of any election result.

Its inevitable ‘anti-austerity’ agenda could lead to an ‘earlier bank rate hike than was previously the case’, the bank argued.

Last night, a second major bank, Goldman Sachs, also raised concerns about the same outcome on May 7.

Goldman said Labour would be ‘dragged to the Left’ by the SNP, which would result in even more money going north of the border ‘at the expense of the UK as a whole’.

It warned that Labour would be then expected to abandon its pledge to manage the public finances carefully.

The reports are a double blow to Labour’s attempts to convince voters that the economy would be in safe hands with a Mr Miliband-led government.

In an election research note, Morgan Stanley said that a Labour-led government reliant on the ‘anti-austerity and separatist SNP’ would lead investors to predict a ‘substantially looser fiscal policy’. Goldman also warned in a note to investors that a ‘Leftward shift’ could cause share prices to fall in UK firms – particularly those hit by tougher regulation and higher taxes such as banks and energy companies.

By contrast, it said the Conservative- led coalition ‘ has established some credibility in markets as a consequence of its contribution to the stabili- sation of the economy and revival of growth that has been achieved since 2010.’

As a result ‘it is likely that business sentiment would be supported by the emergence of a Conservative government’.

Goldman also pointed out that whoever wins the election will inevitably be hit by ‘financial shocks’ in the coming years. ‘Given the mixed record of Labour administrations at dealing with such challenges in the past, the business community may be sceptical that a Labourled government would deliver market-friendly policies.’

The comments mark another vote of confidence for Chancellor George Osborne, who was praised last week by International Monetary Fund chief Christine Lagarde for his handling of the economy.

A Tory spokesman said: ‘This confirms that working people will pay the price for an SNPEd Miliband government.

‘Mortgage rate rises will hit homeowners. Higher borrowing will mean higher taxes and more debt for our children to repay.’

Chris Leslie, Labour’s shadow chief secretary to the Treasury, said: ‘Labour is pro-business, but not business as usual. We want more competition in banking, a British Investment Bank to boost lending and action to tackle tax avoidance.

‘The big threat to the City and our economy is a re-elected Tory government taking Britain out of the EU.’