Anyone who wagered £100 four weeks ago that the UK election would result in a hung parliament probably woke up £168 richer on Friday. The Conservative party looks set to be 19 seats short of the 326 needed for a majority while Labour may need an additional 65. Naturally, a blanket of uncertainty has been thrown over the economy. The last inconclusive result in February 1974 – admittedly against a different economic backdrop – preceded wild market drops before Britons were forced to the polls again eight months later. No surprise, then, that when Liberal Democrat leader Nick Clegg’s fortunes soared after the inaugural television debate, investors took fright and started pricing the threat into currency and gilt markets.

Sterling and bonds aside, the first victims of uncertain politics could be small and mid-cap companies. Compared with the FTSE 100 heavyweights, their greater dependence on domestic income will worry investors. Likewise, those companies expecting swift austerity measures to hand them business, such as outsourcing providers Serco and Capita, could have their plans delayed.

Elsewhere, though, the hung parliament will not cause great panic. Defensive stocks such as pharmaceuticals, tobacco and staple consumer goods will be ready to pick up investors’ lower appetite for risk. Meanwhile, retailers will benefit if the sensitive issue of raising value added tax, or extending it to zero-rated goods, is postponed. And banks could have the threatened clampdown on their operations and remuneration delayed.

Investors should also remember that while governments are bounded by geography, companies are not. A third of London’s stock market earnings are derived from commodities and almost two-thirds are derived outside the UK. The fact that sterling has lost more than 5 per cent since the first televised debate may actually boost overall company profits. So while the next occupant of 10 Downing street remains a mystery, the future for many UK businesses is clearer than it appears.

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