Freaky Friday Fears Give City Nightmare on Threadneedle Street*

London’s financial futures exchange will, in an unprecedented move, open at 1 a.m. on Friday to allow investors to trade gilts as the election results come in.  Investment banks and hedge funds will be at their desks overnight.  Given the closeness of the race if key results are not counted until lunchtime market uncertainty will cause volatility.

The gilt market determines long term interest rates, which fix mortgage rates.  Labour losing the election is priced into the market, consequently gilt yields have dropped below the psychological 4% interest rate as the prospect of a change of government with a focus on bringing down the deficit has buoyed debt and currency markets.  If traders sense a re-run of the 1974 Lib-Lab pact is on the cards they will sell sterling and gilts to the floor.  The pound will be devalued by morning and the gilt yields which determine long term mortgage rates will rocket. It would be a nightmare on Threadneedle Street…

The price of a Labour government will be higher mortgage payments and higher inflation imported by a devalued pound.  If it goes wrong on Freaky Friday it will f**k the economy before the day is out…

*Threadneedle Street is the location of the Bank of England.




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