London - Britain's political outlook is far from clear ahead of Thursday's general election, risking a period of uncertainty for London's financial district, something the City never welcomes.
"Markets may be in for a very bumpy ride in the immediate aftermath of May 7th," said Oliver Harvey, foreign exchange strategist at Deutsche Bank.
Prime Minister David Cameron's centre-right Conservatives, in power since 2010 as part of a coalition government, are neck and neck with the opposition Labour party in opinion polls.
Experts say that Britain is set for a hung parliament, meaning that the Conservatives or Labour will have to team up with a smaller party to govern.
"In theory, fragile governments based on small majorities or shaky coalitions could undermine the economy by fostering uncertainty," said Samuel Tombs, UK economist at Capital Economics research group.
"In particular, firms might not invest if they believe the government may change soon, leading to a new set of tax and competition policies.
Tombs added that "weak governments may not undertake beneficial structural reforms that involve short-term costs and may struggle to achieve a consensus for measures to reduce the deficit".
According to the Investment Association, a body representing investment managers, private investors withdrew £1.0 billion ($1.5 billion, 1.37 billion euros) from UK equity funds in March.
"Private investors are staging a buyer's strike in the lead up to the election. This is pretty par for the course when it comes to the uncertainty generated by such a big political event," said Laith Khalaf, senior analyst at Hargreaves Lansdown stockbrokers.
The significant withdrawal amounted to profit-taking after recent highs for London's benchmark FTSE 100 index, which includes many companies whose profits are sourced from abroad with earnings made in dollars.
British stocks are meanwhile expected to continue to win support from the stimulus measures carried out by central banks around the world.
AFP
