Pound Faces Crisis Risk From Election Tie, Lawmaker Field Says

By Jennifer Ryan

Dec. 3 (Bloomberg) -- The U.K. faces the risk of a sterling crisis and may need aid from the International Monetary Fund if no single political party wins control of Parliament at the next election, Conservative lawmaker Mark Field said.

“The more recent prospect of a hung parliament” risks “tipping sterling and the gilt market into a catastrophic state,” Field said at an event in London yesterday. He is the opposition lawmaker representing London’s finance district, known as the City.

Field’s comments go further than former Conservative finance minister Kenneth Clarke, who said last month that a minority government, known as a “hung parliament,” would be worse than a victory for the ruling Labour Party. An opinion poll published this week showed the Conservatives’ lead is insufficient to secure a majority of lawmakers.

“There’s a substantial risk of a sterling crisis, long- term interest rates would soar and the nation’s essential AAA gilt credit rating might even face a downgrade,” Field said. “If political leaders, concerned only with gaining tactical advantage, show themselves unwilling to face up to the stark facts of this long march back to fiscal balance and the economic recovery, it could even prove necessary to call in the IMF.”

Prime Minister Gordon Brown must call an election by June. The Conservative opposition’s lead over Labour fell 3 points from October to 10 points in a ComRes Ltd. survey for the Independent. Those results, if repeated in the election, would leave David Cameron’s party six seats short of a majority in Parliament, the newspaper said.

Darling Plans

Chancellor of the Exchequer Alistair Darling may signal new tax and spending plans in his pre-budget report on Dec. 9. Britain had a deficit of 11.4 billion pounds ($19 billion) in October, the most for the month since records began.

“The markets have factored in firm action in the near future,” Field said. “They risk being tipped further over the edge if further delays result from an inconclusive election.”

Field also raised the specter of Britain needing to seek aid from the IMF for the first time since 1976, when it obtained a loan from the Washington-based institution.

“A political class unwilling and unable perhaps to take responsibility or court unpopularity may be forced to bring in a neutral umpire to administer the very tough decisions on public spending,” he said.

Morgan Stanley equity strategists Graham Secker and Catharina Luebke-Detring said this week an indecisive U.K. election result next year along with a record budget deficit and an uneven economic recovery may prompt a sell-off in the British currency and bond markets. Standard & Poor’s has put its top AAA rating for the U.K. on a “negative outlook.”

‘National Crisis’

“At a time of national crisis, a hung parliament would be one of the biggest disasters we could suffer,” Clarke said Nov. 10. “You’re going to need a strong government capable of doing unpopular things.”

Field said that whichever party wins the next election, they must risk taking unpopular decisions to shore up the public finances. He suggested that voter approval of the next government’s fiscal policies may be a sign of failure.

“Any U.K. government that is regarded as popular in 2011 or 2012 is probably not administering the right medicine. To do the right thing on tax and public expenditure in the years to come will not be the politically easy option,” Field said. “There is going to be a very hard slog ahead for any U.K. political administration.”

Field spoke at event at London Metropolitan University organized by the Global Policy Institute, marking the launch of a book called “Reforming the City: Responses to the Global Financial Crisis.”

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net