While the prospect of an absolute majority might seem more stable than the alternative of a coalition, the underlying forces in British politics at the moment all point towards increased instability and volatility.
The election of David Cameron's Conservatives makes it almost a certainty that we will have an in/out referendum on the UK's membership of the EU – whatever your views on the subject, in the short term there is no doubt that the prospect of removing the UK from the block where it does the majority of its trading will be a bumpy and fraught affair. While we still think it's likely that UK voters will opt to stay in, that still doesn't remove the unpredictability of the situation.
The massive influx of Scottish National Party MPs will also be the cause of some uncertainty at Westminster; after all this is a party that is committed to taking Scotland out of the UK. The fact that the UK is run overall by their nemesis in the Tories may give added support to their view that Scotland should run its own affairs. It's not unlikely that further positive tests of support for the party (the Scottish election next year perhaps?) may prompt it to call for another independence vote.
And of course these two seismic shifts collide – the SNP is vehemently pro-European, and the Scottish population itself is more supportive of the European project than the English. Should David Cameron find the UK votes to leave the EU, this will inevitably cause the SNP to call for another independence vote, which this time it may well win.
Does this matter for markets? We cannot stress enough that the UK stock market is international rather than domestic, so its sensitivity to the above issues is limited. In the short term the UK currency and its bonds (the investments most sensitive to the perception of the country) may well fare better because of this sense that things will settle down now that we have a clear winner of the UK election overall. But once the debates that we mentioned above kick-off, it's likely that investors will start taking a more pessimistic view of the UK's prospects.
This content was generated prior to Turcan Connell Asset Management Limited operating as Tcam.