UK faces run on pound within hours of polling as futures exchange opens early
Britain could be battered by speculators on the international money markets within hours of the election result as the futures market in bonds and sterling has agreed to open for the first time at 1am on Friday.
The City is concerned that a hung parliament could mean Britain is unable to take rapid action to cut its budget deficit and force a similar battle with bond dealers that the one that forced Greece to resort to €110bn (£95bn) a bailout package put together by the eurozone countries and the International Monetary Fund.
Usually bond dealers would have to wait until the markets opened on the morning after an election to begin trading but the futures market in gilts – UK government bonds – is opening only three hours after the polls close and seven hours earlier than usual. The futures markets play a key role in determining how much interest the government pays on its debts and traders will be able to buy and sell futures contracts as constituency results are announced and the balance of power shifts between the three main parties.
Euronext Liffe, which runs the gilts futures exchange, said it was the first time technology had allowed the market to open early. A spokesman for Liffe said traders would also be allowed to bet on a collapse in sterling, which the shadow chancellor, George Osborne, has warned is likely if the outcome of the election is a hung parliament.
Hundreds of millions of pounds could be won or lost during Friday morning as bond traders and foreign exchange dealers attempt to second guess the election.
Bond fund managers have called for steep cuts in welfare spending by highly indebted European countries to avoid a repeat of the Greek crisis. Spain, Portugal and Ireland have already been targeted by speculators. Some economists have included Britain and Italy in the European "circle of doom" countries that ring the more financially secure nations of France and Germany.
World stock markets remain jittery, with almost $1tn (£650bn) of worldwide equity value erased last week on concern that debt will spur defaults.
Last week the National Institute of Economic and Social Research (NIESR) said Britain was unlikely to come under the same pressure as Greece, Spain and Portugal because it was able to devalue its currency and trade its way out of recession. Britain remains the world's sixth-largest exporter in the world. Sterling has fallen from $2 before the crisis to $1.70 early this year to $1.50 last week, giving exporters a boost as prices of their goods fall.
CMC Markets currency specialist Michael Hewson said ratings agencies were looking for anything that added to the risks of a country failing to pay down its debts – and their pens could be poised over the UK if political paralysis strikes.
"Ratings agencies said they would review the UK's credit rating after the general election," he said. "They will want to see some clear intent from whoever is in power to rein in the deficit."
Capital Economics' Jonathan Loynes said sterling would come under pressure from a hung parliament but the damage may not be as bad as widely feared. "Despite the main political parties' reluctance to engage in a proper debate about the fiscal crisis ahead of the election, there appears to be an implicit recognition of the scale of the problem," he said.
NIESR and the respected Institute for Fiscal Studies thinktank both warned that the parties had to find extra cuts in spending or raise taxes to close the deficit.
NIESR said an incoming government would need to find the equivalent of 6p in the £1 on income tax or £30bn to meet deficit reduction targets. It said: "We remain concerned that the chancellor's projections are based on overly optimistic forecasts for GDP growth and tax buoyancy."
While Britain's debts are expected to peak at about 80% of national income, the country will need extra borrowing to fund state spending for several more years. The £163bn borrowed last year will be matched by about £152bn this year before falling to £82.5bn in extra borrowing in 2014-15. The debts will all add to the country's outstanding mortgage, which NIESR said would take a generation to pay off.
Nouriel Roubini, the New York University professor who forecast the US recession more than a year before it began, said he was gloomy about the prospects for the world economy, and government debt from the US to Japan and Greece would remain a problem for several years and lead to higher inflation or government defaults.
"The bond vigilantes are walking out on Greece, Spain, Portugal, the UK and Iceland," said Roubini, a former adviser to the US. "The thing I worry about is the build-up of sovereign debt. Greece is just the tip of the iceberg, or the canary in the coal mine, for a much broader range of fiscal problems."
More: UK faces run on pound within hours of polling as futures exchange opens early | Business | The Guardian
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Full disclaimer - a fall in GBP would actually be good for SKA - it will boost exports etc!
Britain could be battered by speculators on the international money markets within hours of the election result as the futures market in bonds and sterling has agreed to open for the first time at 1am on Friday.
The City is concerned that a hung parliament could mean Britain is unable to take rapid action to cut its budget deficit and force a similar battle with bond dealers that the one that forced Greece to resort to €110bn (£95bn) a bailout package put together by the eurozone countries and the International Monetary Fund.
Usually bond dealers would have to wait until the markets opened on the morning after an election to begin trading but the futures market in gilts – UK government bonds – is opening only three hours after the polls close and seven hours earlier than usual. The futures markets play a key role in determining how much interest the government pays on its debts and traders will be able to buy and sell futures contracts as constituency results are announced and the balance of power shifts between the three main parties.
Euronext Liffe, which runs the gilts futures exchange, said it was the first time technology had allowed the market to open early. A spokesman for Liffe said traders would also be allowed to bet on a collapse in sterling, which the shadow chancellor, George Osborne, has warned is likely if the outcome of the election is a hung parliament.
Hundreds of millions of pounds could be won or lost during Friday morning as bond traders and foreign exchange dealers attempt to second guess the election.
Bond fund managers have called for steep cuts in welfare spending by highly indebted European countries to avoid a repeat of the Greek crisis. Spain, Portugal and Ireland have already been targeted by speculators. Some economists have included Britain and Italy in the European "circle of doom" countries that ring the more financially secure nations of France and Germany.
World stock markets remain jittery, with almost $1tn (£650bn) of worldwide equity value erased last week on concern that debt will spur defaults.
Last week the National Institute of Economic and Social Research (NIESR) said Britain was unlikely to come under the same pressure as Greece, Spain and Portugal because it was able to devalue its currency and trade its way out of recession. Britain remains the world's sixth-largest exporter in the world. Sterling has fallen from $2 before the crisis to $1.70 early this year to $1.50 last week, giving exporters a boost as prices of their goods fall.
CMC Markets currency specialist Michael Hewson said ratings agencies were looking for anything that added to the risks of a country failing to pay down its debts – and their pens could be poised over the UK if political paralysis strikes.
"Ratings agencies said they would review the UK's credit rating after the general election," he said. "They will want to see some clear intent from whoever is in power to rein in the deficit."
Capital Economics' Jonathan Loynes said sterling would come under pressure from a hung parliament but the damage may not be as bad as widely feared. "Despite the main political parties' reluctance to engage in a proper debate about the fiscal crisis ahead of the election, there appears to be an implicit recognition of the scale of the problem," he said.
NIESR and the respected Institute for Fiscal Studies thinktank both warned that the parties had to find extra cuts in spending or raise taxes to close the deficit.
NIESR said an incoming government would need to find the equivalent of 6p in the £1 on income tax or £30bn to meet deficit reduction targets. It said: "We remain concerned that the chancellor's projections are based on overly optimistic forecasts for GDP growth and tax buoyancy."
While Britain's debts are expected to peak at about 80% of national income, the country will need extra borrowing to fund state spending for several more years. The £163bn borrowed last year will be matched by about £152bn this year before falling to £82.5bn in extra borrowing in 2014-15. The debts will all add to the country's outstanding mortgage, which NIESR said would take a generation to pay off.
Nouriel Roubini, the New York University professor who forecast the US recession more than a year before it began, said he was gloomy about the prospects for the world economy, and government debt from the US to Japan and Greece would remain a problem for several years and lead to higher inflation or government defaults.
"The bond vigilantes are walking out on Greece, Spain, Portugal, the UK and Iceland," said Roubini, a former adviser to the US. "The thing I worry about is the build-up of sovereign debt. Greece is just the tip of the iceberg, or the canary in the coal mine, for a much broader range of fiscal problems."
More: UK faces run on pound within hours of polling as futures exchange opens early | Business | The Guardian
-------------------------
Full disclaimer - a fall in GBP would actually be good for SKA - it will boost exports etc!
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