News & Analysis

Turn again Bailey...

Andrew Saks, Friday, 7 May 2021

Today marks a unique moment for London, in that for the first time in many years the London Assembly, that being the government responsible for the 33 boroughs that make up the world's financial markets capital and which over 15 million people call home.

Despite London's tremendous financial markets dominance, its unrivalled talent base ranging from top banking executives to liquidity providers to a plethora of technology powering the world's markets and its stature of being the birthplace of capitalism, the Mayoral seat which heads the London Assembly has, with the exception of a brief tenure by Boris Johnson, been staunchly socialist since the introduction of the Greater London Council in 1965.

Perhaps even more poignant is its replacement, which in 1986 constituted the devolution of powers to the London Boroughs, led by 'Red Ken' Livingstone, set the course for extremely anti-capitalist policies for a city whose lifeblood is, and always has been capitalism.

A strange marriage of financial markets dominance and socialist public policy has not hindered London's incredible modernity and standing as a world leader in almost every area of sophisticated business, cultural and social life, and highly educated talent from across the world has continued to arrive to contribute further to London's 'global capital' status.

Yesterday, however, things looked set to change, as seemingly invincible Labor Party Mayor Sadiq Khan, almost arrogant in his confidence, was finally challenged.

Admittedly, his challenger was not one of the new parties intent on revitalizing the British economy by ending lockdowns and eschewing trendy vanity projects. Far from it. It was actually the Conservative Party's Sean Bailey, whose Mayoral aspirations have been backed up with a substantial vote so far.

There may not be much difference between Mr Khan and Mr Bailey in terms of policy, as the lines between Labour and Conservative parties are far more blurred these days. Although Conservative in name, it is hardly conservative in nature. However, a change may well have an effect on the markets.

As of just one hour ago, with votes still being counted, Mr Bailey has taken an early lead in the quest to become the next Mayor of London, having received 40 per cent of the votes verified and counted by 11.30am today, two-and-a-half hours into the count, Labour’s Sadiq Khan had received 35 per cent. Mr Bailey’s early lead is not unexpected at this stage as counting is progressing quickly in two Tory strongholds.

The Pound has suddenly gained ground over the Euro, having stopped climbing last week. The Euro now sits at 1.15 to the Pound, whereas yesterday it was at a high point for the week, and the second highest in a month, at 1.16.

That is not the one to watch, however. The FTSE 100, the index which includes Britain's 100 most prestigious stocks, has rocketed by 33.41 points in just one hour, signifying positive sentiment if the Conservative Party become charged with running London's affairs.

The Pound's move can hardly be regarded as genuine volatility, however it is clear that some degree of confidence in Pound strength will occur should Sean Bailey take the Mayoral seat.

The mainstream view is that the slump in the GBPEUR rate today is attributable to the Bank of England's announcement of a reduction in its bond buying programme. This was driven by an expected hike to their growth forecast for the UK economy, but the bank signalled that rates would not rise until 2023.

Some of the Tier 1 banks are active in this regard, including ING bank which predicted that the bank would reduce its bond buying and still stay within its yearly target. This was the headline of the meeting with a cut in bond purchases from £4.4 billion to £3.4billion.

However, the Mayoral vote showing an early lead by the Tory party may be a factor to consider. Yes, Mr Bailey is as woke as his opponent, favoring social engineering and climate clamour over genuine fiscal reform policies and his party's equal obsession with lockdown and restrictive rules to that of the socialist Labour Party, however there are a large number of Members of Parliament in the Conservative Party whose voices are not heard by the media yet have a lot of say in policy due to their standing as senior executives and board members in large London-based companies.

It is that silent majority of MPs that would finally have their voices heard, which would be in favor of business and opening up London to the world once again.

Thus, the results having not been released yet may cause market participants to watch the Pound closely as the day goes on.

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