UK election: more political stability
Towards a more competitive sterling rate
by David Marsh
Mon 13 Apr 2015
The British general election on 7 May doesn’t matter much to most people outside the UK. The most likely outcome is a government continuing the same kind of political stability of the Conservative-Liberal coalition since 2010. The man who looks most likely to be the next prime minister, Ed Miliband, leader of the opposition Labour party, may surprise everyone by turning out sharper and more successful than many suspect.
None of these three statements chimes with conventional wisdom. The tightly-fought race, for which the cliché ‘too close to call’ might have been invented, is widely held to be of great significance for the rest of Europe. This is because the outcome could decide whether or not there will be a referendum on British membership of the European Union, which Prime Minister David Cameron has promised if the Conservatives win.
Because Cameron is unlikely to triumph, a referendum will probably not take place. A Labour-led government (even though it would lack a firm majority and would rely on the mercurial Scottish Nationalists for support) could usher in a more stable overall political constellation for the UK and the rest of Europe than a continuation of the Cameron-led administration. With all its imperfections, the EU will struggle on with Britain still on side.
Miliband is no crowd-pleaser. His personal style veers towards the bumbling. Yet of the British Labour prime ministers since the second world war (Clement Atlee, Harold Wilson, James Callaghan, Tony Blair and Gordon Brown), only Blair has been an obvious orator. That trait earned him no lasting place in the hearts of the British people.
As a result of a relatively robust British recovery, low unemployment, increased consumer spending and Cameron’s coalition’s generally successful economic policies, Miliband should be trailing in the opinion polls. Instead, defying the convention that economics wins elections, the Labour leader is moving ahead of Cameron.
It is impossible to believe that this is because voters are worried about the widening UK current account deficit.
The more plausible explanation seems because Miliband appears to stand for a handful of positive-sounding policies – mainly in terms of supporting poorer people (of whom there are still a lot in the UK). Cameron stands for nothing much in particular apart from a vaguely benign desire to stay on in 10 Downing Street.
The masterfully nebulous Cameron has failed fully to occupy the high ground of economic competence that should be his to command. He has suffered the worst of both worlds. On the political front, he has allowed the Conservatives to be stigmatised as the party of austerity, even though – as the continued high UK budget deficit of over 5% of GDP indicates – fiscal rigour has been less stringent than in most members of the euro bloc.
Yet the economics world gives the government the benefit of the doubt. Sterling is at a five year low against the rampant dollar. Yet overall international confidence in the UK has pushed up the pound to €1.38, highly uncompetitive for many UK exporters.
Former Prime Minister Gordon Brown, as chancellor of the exchequer under Blair, deserves praise for keeping Britain out of the euro. Miliband may have a chance of developing that legacy. If, however implausibly, he becomes Britain’s next prime minister, he will steer a more pro-European line than Cameron. Yet, by being perceived as less favourable to the business community, he will do business a good turn by bringing down the pound from levels that are too high for comfort.
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