IT’S a curious state of affairs when the endorsement of a Wall Street bank widely known as “the great vampire squid” is considered a vote-winner.
Goldman Sachs warned a few days ago that a Labour-led government would drive investors away from the UK because of its likely impact on workforce flexibility (ie scrapping exploitative zero hours contracts) and market interventions such as that on energy pricing.
No one batted an eyelid, and why should they, given the bank’s lack of credibility in the real world? The cephalopodic monicker was coined by Matt Taibbi, whose 2009 Rolling Stone article on Goldman likened it to “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”.
Its UK election intervention prompted even more colourful commentary. James Meadway, of the New Economics Foundation, said listening to Goldman for advice on the economy was “like listening to Dracula on how to run a blood bank”. Michael Burke, once an international economist at Citibank, dismissed Goldman’s election analysis as “laughably bad economics” which appeared to “confuse the economy with the well-being of its own bankers”.
That Goldman also has concerns over the implications of a Tory win were glossed over last week, of course. Like many financial services institutions it’s worried about the prospect of an EU referendum that would do more damage to the City and the economy than a single administration ever could. Just a few months ago it insisted that staying in the EU would be “the best thing for all of us”.
HSBC issued a similar note of caution on Friday, pointing to the possibility of a Brexit as a “stand out” source of economic uncertainty. Others are lining up to make similar statements in the event of a Conservative victory next month, including some of the UK’s biggest financial services companies.
The likelihood of an EU referendum under a Conservative-led government undermines any confidence investors might have in that outcome being best for the economy. A Conservative win also raises the prospect of another Scottish independence referendum during the next parliament.
All of this helps explain why investors don’t seem too worried by the election. Markets hate uncertainty, yet with less than two weeks to the election the FTSE shows few signs of wobbling. One theory is that the FTSE 100 is now such a multi-national affair that it’s no longer sensitive to domestic squabbles. The FTSE 250, with more UK companies, is not so insulated against developments in Westminster, but experts reckon the election uncertainty has already been priced in. It also seems to have been priced into currency, helping allay investor fears of a sterling crisis in the event of an inconclusive election result.
The important thing to bear in mind if you’re anxious about the effect of the election on your pension or investments, is that essentially it’s all noise. There will probably be some volatility next month, but it’s unexpected events that cause the most damage (such as the oil price collapse last year). History shows that booms and busts happen whatever government is in power. Short-term political movements, in other words, should have no influence on your pension or investment decisions if you’re in it for the long term.