Salman Ahmed, fixed income strategist at Lombard Odier, has intimated investor support for an alliance with the Scottish National Party that would see Ed Miliband and Labour lead a government after the upcoming general election, saying it offers most clarity.
Speaking to Money Management’s Julia Farschou in the latest FTAdviser video interview, he warns that if the Conservatives seek to form a cobbled together coalition after the general election there is a question mark over Ukip influence and the likely upheaval of an EU referendum.
Mr Ahmed said in terms of clarity a Labour/SNP alliance offers the most clarity “in the current situation.” Both parties have ruled out a formal coalition, but SNP leader Nicola Sturgeon has made overtures to Mr Miliband to form an anti-Tory block posty-May.
Mr Ahmed added that there will be major economic challenges whichever party leads the next government due to the need to make futher cuts.
He said: “Both parties [Conservatives and Labour] are saying they will balance the structural deficit in the next two years. So by 2017/2018 the cyclically adjusted deficit should be balanced, however they are approaching the issue in different ways.
“The mixture of tax and suspending cuts is quite different if you talk to Labour or the Conservatives. The effect on the overall economy will depend on the shape of any coalition that comes into power and whether there is any room for manoeuvre.
“So, for example, in Labour’s case if there is an emphasis on tax increases then we will see some kind of hit to both sentiment and certainty; while at the same time if the Conservatives come into power with the help of Ukip and other coalition partners then the positive affect on tax policy can be offset by uncertainty on the EU referendum side.”
The UK economy has come out of this crisis pretty well compared to other advanced economies, he added.
Looking ahead in the next six to 12 months, Mr Ahmed said the prospects for the UK economy are positive. However he said the policy uncertainty, depending on how the election turns out, will be critical to the nation’s economy going forwards.
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