General elections have been the cause of property nightmares in the past: pre-election booms followed by busts, or periods of heightened uncertainty in which everybody decides to sit on their hands, awaiting clarity.
We know the precedents, the most famous of which was 1974 and the two elections that year. Two years later, the UK was forced into the arms of the International Monetary Fund, and what at the time was its biggest and most embarrassing (for the UK) bailout.
Or how about 1987? So keen were the Tories to pump up the economy in the run-up to the election that boom was followed by spectacular bust. In the aftermath of Margaret Thatcher’s final election victory, not only did we have the October 1987 stock market crash but also a doubling of interest rates in the space of 18 months. The property crash which set in during 1989 was the consequence.
Soon after, the April 1992 election was followed six months later by “Black Wednesday”, and sterling’s involuntary exit from the European exchange rate mechanism. That exit was ultimately beneficial, but for a long time it did not seem so.
There is much to worry about when it comes to the 7 May election. Some worries relate to specific policies. Most of it, however, has to do with the uncertainty. Before the May 2010 election, pundits predicted a hung parliament. Something about the UK political system had contrived to give us majority governments on most occasions in the post-war period.
The year 2010 was different, though the outcome was better than feared. The Conservative-Liberal Democrat coalition was put together quickly and has lasted. This time, however, may not be so straightforward. Everybody expects a hung parliament. The Conservatives and Liberal Democrats may not have enough combined parliamentary strength to form another coalition. Labour has said it will not enter formal coalition with the resurgent Scottish National Party, though the two could work together on an issue-by-issue basis.
So it is a worry. There is, however, one thing that offers some reassurance… the fact that we have an independent Bank of England. In the old days, a chancellor trying to steady political nerves in the aftermath of an inconclusive election might have opted for interest rate hikes.
Times have changed. In all the discussion about when and by how much the BoE might raise rates, the election does not feature. There is even talk that the next move could be down, though most of his monetary policy committee members, including Mark Carney, have played that down.
There are circumstances in which the BoE could be forced to act. If, for example, sterling started dropping and only a supportive rate hike could stop the slide, the BoE might be spurred into action. But it is unlikely to happen now. The UK might endure a period of political instability but all the other big currencies have their problems too.
So we should be reassured by this. The BoE should be a bulwark against instability in the aftermath of an inconclusive election. We may not have much political certainty but a degree of monetary certainty is now built into the system.
David Smith is economics editor, The Sunday Times
