General Election 2010

Tory claims that hung parliament would cause meltdown are dismissed

Credit rating agency rejects warning that Britain would be plunged into financial crisis if election result is inconclusive

Fears of an economic meltdown in the case of a hung parliament have been dismissed by a leading credit rating agency and senior economists.

Analysis by The Independent suggests that of the 16 countries worldwide who currently have the top triple-A financial stability rating, 10 are run by coalition governments. The majority of nations that have taken the toughest action in recent decades to tackle their debts were also governed at the time by coalitions.

David Cameron and George Osborne, the shadow Chancellor, have warned that a hung parliament would spark a sterling crisis and the intervention of the International Monetary Fund, which is helping to bail out the beleaguered Greek economy.

But the Moody's ratings agency yesterday argued that such an election result could actually make it easier to push through the spending cuts essential to cut the deficit as a plan agreed by a coalition would have broad public support.

Arnaud Mares, its lead UK analyst, said: "A hung parliament does not in itself have direct implications for Moody's UK rating. The three main parties broadly agree on the desirability of fiscal consolidation on a scale that, if implemented strictly over the course of the next parliament, would be consistent with the Government maintaining its Moody's AAA rating."

Another ratings agency, Fitch, assessed Britain's prospects to be "stable", a view it said it had reached bearing in mind the possibility of a hung parliament.

The Standard and Poor's agency lowered its assessment to "negative" almost a year ago, when the Conservatives were in a strong opinion poll lead.

Sixteen countries currently enjoy a triple-A rating – awarded to nations deemed to have close to zero risk of defaulting on their debts – from the main credit ratings agencies. Ten, including Germany, the Netherlands, New Zealand, Sweden and Switzerland, currently have coalition governments and 12 use a form of proportional representation for elections.

History also suggests that having large majorities in government does not prevent crises of sterling. The 1949 and 1967 devaluations both took place when Labour had a clear majority. In 1985 sterling fell to just over $1 when Margaret Thatcher had a landslide majority, while in 1992 the Tories had a working majority when Britain fell out of the Exchange Rate Mechanism.

In contrast, the last time there was cross-party co-operation in a hung parliament situation – the Lib-Lab pact of 1977-78 – it delivered lower inflation and lower unemployment, a recovery in the value of sterling and the IMF was paid off from the 1976 crisis. The deal saw through painful cuts to public spending.

The House of Commons library also discovered that seven of the toughest 10 "fiscal consolidations" – programmes of belt-tightening – in the Western world since 1970 were undertaken by coalition administrations.

The City is becoming accustomed to the idea that the election on 6 May will not deliver the decisive Conservative victory that it might have wished for. Consequently investors have already factored a hung parliament into their calculations.

The City research consultants Capital Economics yesterday said in a briefing note to investment houses that markets were "becoming rather less fearful of the prospect of a hung parliament". It said it had warned in February "some of the worst fears over a hung parliament might be overdone and there are signs that the markets are starting to come round to that view".

Jonathan Loynes, its chief Europe economist, said: "We are not suggesting that all worries about a hung parliament are completely misguided. We are at a precarious position and the finances are in a mess. Action must be taken to sort them out very quickly. But there is growing recognition among the parties that further action to address the fiscal problem is needed. The markets have taken heart from that in the past week."

Investment consultant Desmond O'Driscoll, of Lighthouse Financial Initiatives, said: "Whatever nasty medicine has got to be taken, it would be more acceptable coming from a consensus government."

James Caan, the entrepreneur who features in BBC2's Dragons Den, said: "The financial markets are anticipating a hung parliament, and it will come as no surprise to them. Now it is becoming increasingly likely they will be factoring this into their assessment of the economy and government borrowing."

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs General

Recruitment Genius: Senior Environmental Adviser - Maternity Cover

£37040 - £43600 per annum: Recruitment Genius: The UK's export credit agency a...

Recruitment Genius: CBM & Lubrication Technician

£25000 - £27500 per annum: Recruitment Genius: This company provides a compreh...

Recruitment Genius: Care Worker - Residential Emergency Service

£16800 - £19500 per annum: Recruitment Genius: Would you like to join an organ...

Recruitment Genius: Senior Landscaper

£25000 - £28000 per annum: Recruitment Genius: In the last five years this com...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones