The UK 2010 Election Guide

The last possible date that a general election could be held is 3 June 2010 but Prime Minister Gordon Brown could call earlier resolution of Parliament. At present, there is a broad expectation that Brown will call the election in early May, coinciding with local council elections.

The general election for the House of Commons is based on a first-past-the-post vote in 650 constituencies. So, for a single party to have an overall majority in the House of Commons, it will need to win 326 seats. In the last election in 2005, the Labour Party won 355 of the 646 seats contested – an overall majority of 64 seats and the Conservative Party – the next largest, won 198 seats.

Recent opinion polls show that the Conservative Party currently has a lead over the Labour Party of around six percentage points, but the gap is narrowing. To the extent to which the Labour Party’s relative recovery in the polls on the back of stronger real economy remains debatable, but it is possible to see its share of the vote continues to rise.

From the market’s perspective, an outcome where no party won an overall majority would be one of considerable initial uncertainty. The possible constitutional processes that would follow such as an outcome may add further to that uncertainty in the immediate aftermath of the election. It is likely too that the party with the most seats would attempt to form a minority government, possibly relying on support from some of the smaller political parties in the House of Commons. If the largest party was well short of an overall majority, it may have to come to an agreement with the Liberal Democrat party, the likely terms of which would be the possibility of reform of the electoral system.

In such circumstances, markets may draw the conclusion that significant proposals for fiscal tightening would be postponed until after a later, possibly more conclusive election. It would be interesting to monitor the application of the government’s new Fiscal Responsibility Act, which requires that net borrowing halves from its peak by 201314 so the deficit could fall below 5.5% of less by that point.