Business Under a Hung Parliament

A hung parliament is essentially the result of split voting, leaving no one political party with a majority of seats. This is commonplace in nations with proportional representation (i.e. Germany), however the United Kingdom utilise the first-past-the-post voting system in which such an outcome is very rare.

As of the 7th of May 2010, the UK has entered into a political period in which no single party can claim an absolute majority of seats within parliament. That does indeed mean that the UK is currently governed by a hung parliament, with Labour and the Conservatives holding almost equal seating power. This comes as a particularly large shock to the Liberal Democrats, who were expecting to garner far more votes this election period. Unless final counts tip in the favour of one single party as the majority rule, the UK could enter into a term of coalition governance.

Naturally, this is not the correct forum for direct and purely political discussion (- for all the latest developments regarding the UK parliamentary status, visit the BBC News website.). However it does raise some interesting questions for what this all means for businesses in the UK.

First and foremost, the negative effects of such parliamentary upset can be felt already. The pound (Sterling GBP) fell this morning to a 12 month low, now trading at $1.4639 (2% drop) and €1.1551 (1.6% drop) respectively. On top of this, the FTSE 100 has slumped considerably, loosing 100 points shortly after opening for trade this morning. This is an accumulative effect fuelled by both the uncertainty surrounding the UK’s parliamentary situation, as well as growing fears surrounding the Greek debt crisis.

The Guardian have quoted Howard Archer, Chief Economist at IHS Global Insight, as saying

“The key factor going forward is how quickly a new government can be formed and how well-equipped it is perceived to be to have a very real chance of taking, and getting through, the necessary strong action to rein in the public finances…”

There is no doubt that UK business is in a state of unease regarding the future progression of things to come. Party leaders are looking into workable methods of forming a new government, but these discussions are in their infancy.

Industry leaders across the UK are today calling for stability at the top level of politics. The situations surrounding this entire fiasco could ultimately lead to a panic-fuelled re-entry into a state of recession. A double-dip recession has been on the cards for some time, with a scenario like this a perfect example of how rapidly the prediction could become a reality.

So as of today, business in the UK will resume as normal. No individual party changes that could have effected business (both positively and negatively) will come into play, as no one party holds judgement over another. Until solid ideas are put forward as to how progression will unfold, care must be taken to avoid the hung parliamentary status effecting UK business for the worse.

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