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A survey quoted on Channel 4 news just now said that 56% of the civil service are expecting a hung parliament.  Civil servants of course know no more more about the results of any forthcoming elections in advance than any other intelligent observer, but nevertheless it may given an indication of what the general buzz in the Westminster village might be.

This was immediately followed by a report about the economic implications of a hung parliament.  But watching the report I’m quite concerned about the constant pumping out of the message about how a hung parliament is unpopular with the market, could lead to a market attack on sterling and will be bad for the UK economy.
It’s an eyecatching line but it doesn’t seem to be a universally held view – the Evening Standard on 16 March listed Namura, Citigroup and Forex supporting this stance, with Capital Economics (described in the Evening Standard as “cooler heads”) and Moody’s rating agency less concerned and pointing out that they would be expecting action to address the deficit from just about any government formed.  

The general gist seems to be that when the UK last had a coalition government, in the late 1970s, the ultimate result was an IMF bailout. 
But the situations are not really comparable, because the world is a very different place and not just a bit more complicated but massively more complicated in terms of potentially affecting factors. And the last two recessions accompanied by large fiscal deficits have taken place under single party governments in the UK.

If markets prefer a strong government with a workable majority of seats, then they have to be confident that the fiscal policy being pursued is the right one. 
That said, having also watched “Ask the Chancellors” this week, I’m not sure that it is clear that there’s that much difference of approach on offer in terms of a fiscal recovery plan – and that should surely be reassuring? 
The main issues of difference seems to be whether to cut tax or to cut spending, and the speed of doing it. 

In addition to this, the economy can surely not be helped by the threat to downgrade the UK’s soverign bond rating, which would raise significantly the cost of financing government debt.  Basically who ever finds themselves in power needs to be impressive on fiscal plan to keep AAA rating, but this threat in itself should focus minds.
But there’s no reason why a coalition government couldn’t come up with a strong plan that could be delivered? Julian Astle, Director of CentreForum quoted in the same edition of the Standard pointed out that:
“the broader the political support for fiscal retrenchment , the broader the likely level of public support. Around the world, coalition and minority governments have proven entirely capable of dealing with debt.”

So I don’t really see that a hung parliament should necessarily mean that we should all be panicking, nor that the markets should do so either. 
Unless our politicians are incapable of doing what their opposites in other EU Member States are able to do and find ways of working together despite labels?   But that would be ridiculous.  After all, as the Spectator pointed out, UK political parties are indeed broad churches, or, to put it another way, coalitions themselves, so presumably they are used to needing to work to balance different interests and perspectives…   

I read last week that some UK politicians believe that the public prefers strong government (politicians certainly do!) and are expecting that all the talk of hung parliaments should spur the small “c” conservative electorate into giving either Labour or the Conservatives a workable majority. 
That may be the case, but there’s what I like to think of as the Jedward factor that comes into play here – we also love a novelty here, sometihng a bit different. 
At least until we get fed up with it (like October 1974 all over again…)

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