Markets rejoice after Cameron romps home

Sterling at 2009 high against euro Banks, utilities and builders rocket Brexit fears weigh on pound outlook

THE pound hit a six-year high against the euro today and the FTSE 100 surged as the City welcomed the Conservatives’ shock election victory.

Markets rejoiced at the prospect of a stable, Tory-led government continuing the austerity policies of the past five years despite the likelihood of a referendum on Britain’s membership of the European Union.

Sterling rose more than two cents against the dollar to $1.5446, while the euro slumped against the booming pound by 1.54p to 72.46p. Yields on UK government debt also fell, reflecting Conservative plans to lower the deficit and borrow less than Labour.

Shares in banks, housebuilders and utilities jumped on the back of the news as London’s FTSE 100 broke back through the 7000-point barrier.

Trident supplier Babcock was the biggest riser — up 8.1% to 1071p.

“The odds were stacked against such a decisive outcome. This result is far less complicated than the markets’ worst fears,” said Bill O’Neill at UBS Wealth Management.

“Markets will respond swiftly today and in the coming days. With certainty will come a renewed confidence from investors in a more stable and transparent policy climate. For now, let’s enjoy the relief rally.”

Despite such an overwhelmingly positive reaction from the financial markets, experts warned an expected EU vote in 2017 could hit the economy.

Alan Wilde, head of fixed income at Ba r i n g As s e t Ma na g e me n t , said: “Longer term, the next worry for investors will be an in-out referendum on continued membership of the European Union which PM [David] Cameron has vowed to hold in 2017. It will be interesting to see if the poor showing of Ukip changes the PM’s determination to hold this ballot.

“If it goes ahead, the business community will bring strong support to both sides during what could be a long and damaging debate but quoted companies would almost certainly want to avoid a divisive referendum with all the attached risks it would bring to investment and expenditure plans until resolved.”

Others cited the rise of the SNP as a major headwind for the economy. Andrew Wells at fund manager Fidelity said: “As the dust settles the change in Scotland will have to be closely followed. Whilst the Scottish Nationalists did not campaign on a ticket of devolution, the magnitude of support for them must herald change in the future, and this will cause greater uncertainty.”