Markets rise to Major but jittery about future

BUSINESS AND CITY STAFF

John Major's victory gave sterling and other markets an immediate boost, but the City was divided over whether the good reception would last after international investors digested the news.

In late trading, sterling rose half a cent to $1.6020 and 0.4 pfennigs to DM2.2082, FT-SE futures were up 17 points and gilts rallied half a point.

Bill Martin, chief economist at UBS, said: "The net effect of the leadership contest has been to raise the tax-cutting stakes. The Chancellor will probably feel obliged to deliver tax cuts greater than the Redwood floor of pounds 5bn in November. It would be wrong to assume all political risk has been removed."

Kevin Darlington, of Hoare Govett said: "This does not end the risk that the Government will be tempted to play fast and loose with the economy to win the general election." According to Neil MacKinnon of Citibank, ''we will have to wait another day for the reaction of international investors. The City's initial view often tends to be reversed in the cold light of day."

Keith Edmonds, senior analyst at IBJ International, nevertheless expected a rally in the pound now the air has been cleared.

Equity specialists were also encouraged. Edmond Warner of Kleinwort Benson Securities predicted a 1 per cent rise in the FT-SE 100 index today on the grounds that "if John Major got anything like a credible majority - and that means anything which begins with a two - the Cabinet heavyweights would come out and support him." Such backing was already becoming evident, he suggested.

Allison Southey, an equity strategist at Nomura, said although the short- term response might well be positive, the long term could be more uncertain. "We haven't learnt any more about economic policy. There might be more horse- trading to keep all the factions happy."

Ian Stewart, UK economist at brokers Smith New Court, said the news was good for currencies, equities and bonds. "Now that this uncertainty has been ended, the market will revert to the upward trend seen in the last few weeks."

Neil Woodford, a senior UK fund manager at Perpetual, said the votes cast in favour of John Major would be enough to "calm nerves a bit".

"But a lot depends on whether victory can be used for greater political stability in the longer term and whether John Major can achieve some sort of consensus in the party on Europe," said Mr Woodford.

A strategist for another investment institution said market uncertainty would remain for some time, but he agreed the size of Mr Major's victory might calm nerves a little in the short term. He said his institution was not worried about the possibility of a Labour government but that "the present Government may do something imprudent or take a risk".

Comment, page 21

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'