Clarke is favoured chancellor

LONDON Wed Mar 31, 2010 3:49pm BST

Shadow business secretary Kenneth Clarke speaks at a Reuters Newsmaker event, in London March 2, 2010. REUTERS/Andrew Winning

Shadow business secretary Kenneth Clarke speaks at a Reuters Newsmaker event, in London March 2, 2010.

Credit: Reuters/Andrew Winning

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LONDON (Reuters) - An outright win for the Conservatives would suit financial markets best in an upcoming election, but economists polled by Reuters ranked the party's likely choice for Chancellor poorly against peers.

The poll of 31 economists taken this week showed an increasing number predicting a hung parliament in the poll on May 6 and warning this was the worst result for markets.

The poll results derive from extra questions put to Reuters' regular panel of economists for its closely-watched Bank of England interest rate poll.

An outright Conservative majority was seen as the best market outcome, but they were distinctly lukewarm in their enthusiasm for current Shadow Chancellor George Osborne, ranking him fourth out of five potential chancellors.

Conservative shadow business spokesman Ken Clarke was their favoured choice, followed by third-party Liberal Democrat finance spokesman Vince Cable and current Chancellor Alistair Darling, all outperforming Osborne.

The predictions on a hung parliament -- given a median 55 percent and mean 56 percent chance -- was a sharp shift from a similar poll published on January 28, which showed only a 25 percent chance of no one party winning an overall majority.

Since then, opinion polls have shown the Conservative lead shrinking sharply, raising market worries an inconclusive outcome might provide policy paralysis just as ratings agencies and investors demand action on a record deficit.

Those worries have hammered sterling, which has lost some 6.5 percent against the dollar in two months. It has lost 2.5 percent against the euro at a time when the single currency has itself been battered by worries over Greece and other troubled fringe economies.

"Markets generally believe the Conservatives will act faster on the deficit, so it's no surprise that is the favoured option," said Adam Cole, head of foreign exchange strategy at Royal Bank of Canada. "The main thing is to have a credible government, of whatever colour."

Overall, those polled saw a median 30 percent chance of a Conservative majority, a 35 percent chance they would be the largest party in a hung Parliament, a 20 percent chance Labour would be the largest party in a hung parliament and a 10 percent chance Labour would win outright.

CIGAR-SMOKING EX-CHANCELLOR

Those polled ranked a hung parliament with Labour as the largest party as the worst outcome for markets, followed by an outright Labour majority followed by a hung parliament with the Conservatives as a largest party.

Least favoured as a potential occupant of number 11 Downing Street was Ed Balls, a close confidant of Prime Minister Gordon Brown who some have speculated might replace Darling -- although Brown rejected this in a weekend interview..

The Conservatives have poured scorn on occasional suggestions they could replace Osborne -- a close personal friend of party leader David Cameron and sometimes accused of inexperience -- with Clarke. However, Cameron said earlier this month he could fire Osborne if he had to.

Osborne, Darling and Cable faced off against each other in a televised debate on Monday, with Liberal Democrat Cable widely seen coming out on top.

A former economist for oil firm Shell widely credited with partially predicting the financial crisis, Cable repeatedly polls as one of Britain's most respected politicians.

While his party is seen having almost no chance of outperforming its two larger rivals, they could hold the balance of power in a hung parliament, with Cable a potential coalition chancellor.

They, and some analysts, argue that a hung parliament would not necessarily prevent responsible policy making, pointing to similar circumstances in Europe and elsewhere. Others argue that Britain has no tradition of coalition politics and such an outcome would prove relatively unstable.

(Polling by Bangalore Polling Unit; Additional reporting by Andy Bruce; Editing by Patrick Graham)

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