Pound can hang on no longer

Not 3, but an ambitious 116 will be Mr Cameron’s magic number this May. Clinching this number of seats will guarantee the outright Commons majority of 326 required to prompt the invitation from Buckingham Palace. Such an outcome however, is by no means a given as previously conceded.

What was a formidable double digit poll lead at the turn of the year has now dropped to a five or six point margin, galvanising Labour’s hopes of clawing back the gap. Others place the Tory standing slimmer still. A YouGov poll published in the Sunday Times last week said the gap has now narrowed to a mere two points – the lowest since the end of Brown’s ‘bounce’ at the beginning of his premiership. This recent Tory stumble, tripped further by the news of Lord Ashcroft’s evasive non-dom status has advanced the prospect of a hung parliament being the likely result of the forthcoming election.

The odds of electoral stalemate sent tremors through the gilt markets feeding directly into the value of sterling. The pound lost 1.7 percent of its value against the dollar last week continuing its depreciation below the $1.50 level for the first time since May. Though welcome news for British exporters still blighted by the global fallout in international trade, it has sparked fears of a sterling crisis amongst investors.

The cause for alarm lies in the fear that a minority government will not be able to take the necessary punitive measures to address the fiscal deficit. In absence of a majority party, legislation will become harder to pass and could hinder Britain’s nascent economic recovery. The most vociferous critic, PIMCO, the world’s largest bond fund manager, even aired the idea that the debt could jeopardise Britain’s coveted AAA credit status and lead us straight back to recession.

But is there really such cause for concern? Though the concerns surrounding a hung parliament’s legislative weakness are with foundation, its true risk is largely overplayed. It remains very unlikely that a strong parliamentary base couldn’t be forged by bargaining with the Liberal Democrats and fringe parties; and with each sharing the common goal of fiscal retrenchment the needs of the country could be tended to. This could all be avoided if the Conservatives can pull off the second largest electoral swing in 60 years.

Moreover, we’re forgetting that these sorts of anomalies tend to be rare in British politics. In his speech to the Economics Society last Wednesday, Sir Robert Worcester, acclaimed pollster and founder of MORI outlined his predictions. Of the 116 golden seats in Cameron’s sights, around 90 are set to go blue, encompassing the local Warwick and Leamington Spa seat seized by James Plaskitt for Labour with a slim 266 vote margin in 2005. If those 26 remaining seats can be prised from the locally popular Lib Dems, Worcester’s forecast of a euphoric Mr Cameron arriving at Buckingham Palace in May may hold true. It appears 2010’s new Parliament may not be so hung by a thread as envisaged.