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Banking

UK elections: Many seats will move the market Footsie?

Investors are awaiting the results of the British general election with mixed feelings. In political and financial circles it's generally forecast that on May 2 the Labour party will win a majority, ending the 18-year rule of the Conservatives. What remains in doubt is the size of the majority the party will command.

The size of Labour's majority in the 659-seat House of Commons will have a vital bearing on the way markets treat British shares and the British economy over the next five years. If the polls are to be believed, putting Labour at least 20 points ahead, a landslide is possible. But the polls also (wrongly) predicted a Labour victory in 1992, although by a narrower margin.

The result preferred by the financial markets would be a clear victory for either side since this would limit uncertainty and volatility. A small majority or a hung parliament is seen as the worst option: "In a hung parliament, Labour would have to rely on their own Eurosceptic MPs, old-style Labour MPs, and the Liberal Democrats," says an analyst at a US investment bank. "If that happens, there would be more pressure on the administration to change their strict fiscal policies or take a hard stance against Europe, neither of which would be welcome in the City."

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