Bookie William Hills is currently offering odds of 11/8 that there will be no overall majority, meaning a hung parliament, at the next election.
So, as an 'odds against' bet, the recent press frenzy speculating on a hung parliament looks overdone. Indeed, a hung parliament isn't actually that likely. History demonstrates that the governing party tends to pick up support in the period from when parliament is dissolved until polling day, and that the main opposition party tends to lose support. Still, a hung parliament remains more likely than it has been for decades. Indeed, the last was one was in February 1974 when Labour won the most seats and Tory leader Ted Heath famously refused to leave Downing Street until it became clear that he couldn't form a working majority. The trouble was that Harold Wilson's minority government wasn't stable, prompting a second general election that October, which Labour won. Crucially, until then the result was policy paralysis. And that's the big fear for investors – that a hung parliament, regardless of how a coalition government gets cobbled together, will mean paralysis.
Paralysis on tackling the budget deficit could leave financial markets pricing up the cost of government borrowing - which would have a knock-on effect across the economy, possibly initiating a full-on sterling crisis. That's bad news for most companies and most share prices – although those that mainly sell their goods and services abroad would benefit. But it's doubtful that such a positive abroad is worth all the misery at home, so investors should hope for a clear win by one or other of the parties.
