Before the election George Osborne and many Tory leaning pundits were claiming that a coalition government would wreak havoc in financial markets. Guido argued the opposite – that a “Change Coalition” would see gilts rocket upwards – only a government involving the Labour Party would wreak more financial havoc.
The gilt market has seen yields drop a full 50 basis points, in plain english that is the gilt market taking ½% off the ten year interest rate against which many mortgages are set.
This immediate £6 billion reduction in unfunded over-spending is seen in the City as confimation that the LibDems are fully signed up to the savage cuts to come next year. Britain has now moved out of the P I I G S bracket of nations (Portugal, Ireland, Italy, Greece and Spain) in danger of sovereign default.* The chart above shows it all clearly, during the days when the City feared a Lib-Lab government the markets declined and once the Lib-Con government was in the bag they rallied.