U.K. stock markets surged and the pound hit a three-month high after it was announced that Prime Minister David Cameron’s Conservative Party were set to win a majority in the U.K. election, paving the way for it to govern without the need for a coalition.
London’s FTSE 100 index shot up almost 2 percent within minutes of opening, reaching a high of 7,033 points, and the pound sterling traded against the dollar as high as $1.5521, compared to $1.5243 late Thursday. Government debt also rallied as the yield on 10-year treasury paper fell to 1.864 percent from 1.982 earlier in the week, making borrowing significantly cheaper.
“Investors see the UK as a safe haven again. Gilts are a good place to place their money. The result takes the uncertainty out of it,” Nick Serff of City Index Group told the Guardian.
Following the news of the Tories' win, the FTSE 100 was up more than 1.5 percent while the FTSE 250 was up 2.9 percent. The pound sterling was trading at 1.5464 against the dollar as of 9:14 a.m. GMT (5:14 a.m. EDT).
The rally was driven by news that the Tories would likely be able to govern alone, without needing to form a coalition with other parties, which widely goes against what polls had indicated.
“This result is far less complicated than the markets’ worst fears,” Bill O’Neill, head of the U.K. investment office at UBS Wealth Management, told the Wall Street Journal. “With certainty will come a renewed confidence from investors in a more stable and transparent policy climate.”
However, some traders were worried by the Conservatives’ promise to hold a referendum on the U.K.’s membership in the European Union, which raises the worry of a so-called “Brexit.”
“Business as usual should be positive for the markets,” Brian Jacobsen, of Wells Fargo Asset Management, told Bloomberg. “The prospects of a referendum on EU membership shouldn’t rattle markets. It’s highly unlikely a Brexit will occur. Membership has its privileges and those would be costly to give up.”