Hung parliament bad for business – but nightmare avoided

Comment Martin Flanagan

Relax. Volatility is the new normal. Otherwise, it could get depressing. Trench humour and the business world are not usual bedmates – the pursuit of financial returns is too serious for that.

But when equities seem to take so much in their stride you wonder whether the stock market in particular is lying down in a hermetically-sealed room, nursing a drink and playing soothing music.

Conservative/lib Dem coalition with turbo-charged austerity policies to address ballooning public debt; Scottish independence referendum; the Brexit vote; loose cannon Donald Trump’s social media-fuelled anointment by the masses in America; and now a hung parliament in the UK with a shop-soiled Prime Minister who is just about to begin two years of arduous negotiations for the UK to leave the European Union. Despite it all, markets have proved surprisingly resilient, silver linings are spotted.

The pound lost 2 per cent against the US dollar yesterday as traders digested the Technicolor backfiring of Theresa May’s tactics (it would dignify it too much to call them a strategy).

However, the FTSE 100 index rose more than 1 per cent as blue-chip stocks earn a big slug of their earnings in dollars. It’s almost as if a tacit modus vivendi has been reached between times of unnerving fundamental uncertainty on the one hand and bubble-wrapped optimism about company earnings on the other.

Business is bedevilled by uncertainty and blurred prospects yet again. Markets don’t like hung parliaments because they make government policy fluid, unpredictable, dependent on bi-partisan deals that may be built on shifting sands. But many in business, while jolted by May’s deeply unimpressive campaign squandering a major popularity points lead and making the Brexit cloud even darker, believe that it could have been much, much worse.

Jeremy Corbyn’s retro Labour did not gain power, corporation taxes are not going back through the roof to fund ambitious welfare plans, we are not going at this time to have a Back to the Future nationalisation policy. Many believe Corbyn is viscerally anti-business. The A-game nightmare has been avoided for now.

Cynically, a listing Tory party is less disconcerting for business than Corbyn in power.