Brown resignation sends pound plunging as investors fear power vacuum

Gordon Brown's dramatic intervention is likely to mean further delays. A good reason to sell the pound?

Last Updated: 31 Aug 2010

It may not have escaped your attention that the Prime Minister announced his resignation yesterday. Now whether you believe this was an honourable attempt to expedite a progressive alliance or a tawdry stitch-up to help Labour cling on to power, the most likely consequence is a resolution to the current political paralysis looks even further away. As far as the markets are concerned, that's surely a bad thing. But, although shares are only down slightly this morning, suggesting there's no mass panic, the travails of the pound suggest that some investors are worried by the prospect of this Labour plan working...

The FTSE is down about 1.5% at time of writing, which is not entirely unexpected following the big gains yesterday (the other European markets are down a similar amount). But the pound hasn't fared so well: after touching $1.505 yesterday when it looked as though the Lib Dems were close to a deal with the Tories, it had lost the best part of three cents by this morning after it emerged that they were considering hopping into bed with Labour instead – a process facilitated by Brown's resignation yesterday evening. It's currently around the $1.48 mark, while UK gilt yields (which indicate the Government's borrowing risk) are also up. (Though it could be worse – we could be part of the euro...)

This is no doubt largely because Brown's intervention seems likely to create further delay. Yesterday a Lib/Con deal looked imminent – now everything seems to be up in the air again. And as we said yesterday, that means more delays to the Government's attempts to slash our massive budget deficit, which is bad news all round. Equally, if the Lib Dems do agree a deal with Labour, and the latter gets a new leader, presumably there'll need to be another General Election later this year. That would not only create a power vacuum in the meantime, but also provide another unwelcome distraction from the key issue of the moment – our knackered economy.

Companies know that they'll get punished if they find themselves with a leadership vaccuum – their share price will sink as investors take fright and it will be harder to hang on to key staff. So the business world – which seems to have largely favoured an outright Conservative victory, if only because it would have been the most decisive outcome – will be hoping that Nick Clegg (who, implausibly after last Thursday, seems to be the most powerful person in the country at the moment) chooses wisely, and chooses fast.

In today's bulletin:
Brown resignation sends pound plunging as investors fear power vacuum
Unite seeks BA negotiations - by announcing 20-day strike
RBS cuts 2,600 jobs - and high street suffers
Goldman to cull dozens of partners?
The Parent Project: The new rules of commuting

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