28th January 2015
Brenda Kelly, Chief Market Analyst at IG Group, discusses why the smart money is putting its weight behind a hung Parliament:
“It is still 100 days to go until the UK goes to the polls, but already the media is full of polls, TV debates and debates about the TV debates. What is already clear from the polls however is that even if one party emerges with a majority, it is likely to be a slim one. A hung Parliament, the second in a row, is the most probable outcome, with the winner needing to put together a coalition to provide a stable platform for government. Unlike in 2010 however, that coalition may not just be à deux, but a cobbling together of a number of different interests.
“Recent polls from YouGov, ComRes and Survation have all put the Conservatives ahead, but not by much. The overall picture is unclear, as both Labour and the Conservatives lose votes to fringe parties; in the latter’s case this means Ukip, but for the former it could mean the Greens, the SNP or Plaid Cymru.
“The big two parties have been in decline in vote share terms for years. Gone are the days when Labour and the Conservatives were essentially the ‘only game in town’. It is hard to believe that John Major’s share of the vote in 1992 was 42%, while even in 2005 Tony Blair could still rely on the votes of just over 35% of the population. Now both main parties struggle to reach 32% in the polls, with Miliband’s ‘Core Vote’ strategy aiming for a 35% share that could put him into Downing Street looking in serious jeopardy.
“For those looking to find a reliable answer on the outcome of any political contest, the lesson from the US presidential election of 2012 and the 2014 Scottish referendum is the same – follow the money. In both of these events, IG’s binary market on the outcome predicted the result without any of the apparent neck-and-neck performance indicated by the polls, with the majority of money placed backing the eventual winners.
“As the time to the UK’s election ticks away, the current betting points to a hung Parliament result, with ‘no overall majority’ currently on a 75% chance of being the outcome. The next closest is a Conservative majority, but this is currently rated at just a 14% chance by IG clients, compared to a 11% chance for a Labour majority.
“The current level of campaigning will seem modest compared to the barrage of broadcasts and output from the major parties as the election nears, and of course the TV debates could prompt a shift in opinions similar to the ‘Clegg Bounce’ of 2010, but for now the smart money is putting its weight behind a hung Parliament.”