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Screenshot of a breaking news alert e-mail from Q2 2017
Today, Britain’s business community awaits the outcome of the general election as the nation which hosts the world’s largest financial and electronic trading sector, heads to the polling stations to elect its next government.
Since the dark days of the 1970s when trade unions ruled over their employers with an iron fist, the three day working week was foist upon employees across the nation due to lack of commercial ability to pay salaries, and refuse piled up in the streets of towns and cities, there has not been a more unpredictable outcome as the anti-business, socialist Labour party runs neck-and-neck with the more enterprise-orientated Conservative party.
In the run up to the election, Labour leader Ed Miliband, who has earned the nickname “Red Ed” due to his Marxist ideologies, has stepped up his party’s disdain for private enterprise, personal freedoms and, in particular, the ability for global business to prosper in London’s financial district.
What does this mean for the FX industry?
LeapRate spoke to some of London’s established industry leaders, in order to gain perspective on their anticipation of the effects on the industry should Labour take power from the incumbent Conservative party.
Charles-Henri Sabet, CEO of London Capital Group Holdings plc (LON:LCG) explained his perspective to LeapRate “With the front running Conservative and Labour parties assessed at 30-35% support each, a coalition seems to be inevitable. The million dollar question is: which coalition.”
“A Conservative-led government is seen as market-friendly and business supportive. The main risk behind a Conservative majority government is the referendum on an EU exit before the end of 2017. Therefore the market will likely react by shorting the GBP-complex in case of a Conservative victory, as a potential exit from the EU may be dramatic for UK’s trade terms. While the current account deficit is already 6% of the GDP, stepping out from the EU could only weigh on the deficit, therefore this should be negative for the value of pound sterling” continued Mr. Sabet.
“Conversely, the market is less enthusiastic regarding a Labour Party victory. Labour party’s Keynesian bias and strong incentive to intervene in the economy is alarming for the budget deficit. Therefore, a Labour-led victory will certainly push the BoE to counterbalance the looser fiscal policy and consider an earlier-than-otherwise tightening on their monetary policy. Moreover, the EU supportive stance of the Labour party is encouraging for stability on the foreign edge. From this perspective, a Labour-led government is ceteris paribus positive for the British pound” concluded Mr. Sabet.
Raj Sitlani, Managing Partner of London-based prime-of-prime company ISPrime, explained to LeapRate “Clearly if the Conservative retain government then it’s business as usual.”
“If Labour come to power, then I suspect they will vilify the City, scare away some of the big banks/institutions, make the UK less competitive and perhaps undermine London’s dominance in the financial markets” he continued.
Michael Spencer, Chairman of the world’s largest interdealer broker ICAP plc (LON:IAP) made his case publicly clear recently, stating that if the Labour party wins the election, he would consider relocating ICAP to North America.
Mr. Sitlani further explained that “Ed Miliband is one of the most left leaders of a Labour party we have seen in a long time. All he will do is spend spend spend, so on balance a Labour win, majority or a Labour led coalition is bad for business, and hence bad for the City.”
When asked by LeapRate if businesses in the FX industry may consider relocation abroad should the Labour party win the election, Mr. Sitlani concurred “I think they may well move abroad, although FCA regulation still means something.”
Therefore, bearing in mind Mr. Sitlani’s very valid points, it is possible that some firms may retain a small office for compliance purposes, and relocate their core activities should the Labour Party gain power.
David Andrews, CEO of Atom8, conveyed his perspective to LeapRate by stating that “”The regulatory regime around retail and professional margin products is ever increasing and neither victor in the UK will likely slow that broader European agenda. A Labour win will likely increase market volatility and weaken the pound compared to a conservative result. Either way, FX leadership is ebbing away from the UK and Europe to Asia and other parts of the world.”
Paul Orford, VP Business Development at TopFX stated to LeapRate “This is the closest election in living memory, and in my opinion the most negative. It is being fought upon the other party is worse than me, rather than we are better than them because of my policies.”
Mr. Orford continued “The Australian born spin doctor for the Conservative Party, Lynton Crosbie, is synonymous with developing a negative campaign for the various parties he has been hired by. Although, some may accuse them of often stating misleading information, after a while it seems to becoming fact in the court of public opinion.”
“As a result of the first past the post system, the party with the most seats can actually have the less votes and form a government. So as a result the Conservative party supporting press are framing the narrative of who has the ‘right’ to govern” said Mr. Orford.
Mr. Orford’s conclusion is that “As we all know markets do not like uncertainty, so with a coalition government by many parties this time, rather than just two, could lead to a second election in several months time. From what my analysts can see, the biggest turnout will be for the apathy party!”
Shadow Chancellor of the Exchequer Ed Balls, in the advent of the election, stated that he intended to hit the high earners hard, and therefore an individual exodus of skilled senior executives may occur, as well as the entities that employ them as banks, interdealer brokers and FX firms in London’s city would be expected to pay vast tax bills to subsidize the floundering economic situations in other parts of the country which have become increasingly de-industrialized and welfare-dependent.
It is clear that animosity between the general public outside of London has amassed, and this, combined with the entitlement culture that was installed by the previous Labour government between 1997 and 2010, could be fueling the popularity of such a staunch socialist party.
Indeed, the outcome is hard to judge, however in today’s electronic trading industry, borders are invisible, thus the exodus of certain firms may not be such a difficult task, with continuation of business not being affected one bit, but the nation’s GDP derived from business being the potentially hardest hit.
Photograph: Top Right – Charles-Henri Sabet, CEO, London Capital Group; Center Left – Raj Sitlani, Managing Partner, ISPrime; Lower Right – Paul Orford, VP Business Development, TopFX;