A Conservative victory in the election would expose the economy to the risk of a damaging fall in inward investment, leading City economist George Buckley has warned.
Mr Buckley, chief UK economist of Deutsche Bank, said inward investment into the UK was "absolutely enormous" equating to around three times GDP. "If you are an overseas company thinking about investing in the UK, would you still do it if you thought there might be a referendum on the EU in two years' time?"
Mr Buckley told an event staged by Tilney Bestinvest that the number of people wanting the UK to stay in the EU had risen to 45per cent in recent polls, rising to 55per cent if told there had been a "major renegotiation" - which might pertain regardless of whether this was true.
But he warned: "Business investment is potentially highly sensitive to the possibility of having a referendum, it doesn't matter whether it's an in or out vote, it just matters that you are holding it in the first place."
The economist said markets would balance this risk against the risk that a Labour administration backed by the SNP would "substantially slow" the pace of deficit reduction, currently the fastest in the OECD. There was currently a 50per cent chance of one 0.25 per cent rate rise over the next 12 months. "If anything a Labour government might accelerate that, pumping more spending into the economy....inflation might be a bit higher, and the Bank of England might bring forward interest rate rises. You could also see higher yields because of a higher deficit."
Mr Buckley said the election would have an impact. "It will cause a lot of volatility, markets are going to move potentially quite sizeably, but this is a short-term issue."
Deutsche Bank believes the Federal Reserve will move to lift rates in September, and if so the Bank of England would be most likely to follow suit next May.
Ben Seager-Scott, investment strategy director at Tilney Bestinvest, said that unusually its investment philosophy had to be that equities would continue to advance as long as the central banks continued to print money.
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