Industry pundits are welcoming the announcement with lukewarm enthusiasm, suggesting the certainty afforded by a strong coalition is preferable to uncertainty, but at present the country is unclear on many major points of policy.
Cameron and Liberal Democrat leader Nick Clegg have been discussing which ministers will hold which seats in the cabinet today. At the time of writing this afternoon 16 had so far been announced with five Liberal Democrats appointed including Clegg.
Before going into Downing Street last night, Cameron said that this would be a “full and proper” coalition with the Liberal Democrats being awarded five cabinet seats.
John Heron, managing director of Paragon Mortgages, said it was difficult to comment politically because the coalition meant there was a mix of Liberal and Conservative policy yet to be defined.
He said: “As is always the case with these things, the devil will be in the detail. Just how the two parties’ policies fall in relation to the wider economic issues will dictate the shape of things to come.
“We simply don’t know what coalition policy on housing, mortgages and regulation will be at the moment.
“I think it’s important for the market that there is some clarity provided on these issues as soon as possible.”
Frank Cochran, managing director of Wolverhampton-based IFA, FSC Investment Services, said: “I think the coalition was the most obvious choice.
“It could be the dream team – this allows the government the best of both parties’ agendas and the best of both parties’ people.
“A lot of positives have come out of this, but we will need to wait and see what happens.”
Already confirmed is that George Osborne will be Chancellor of the Exchequer and Liberal Democrat heavyweight Vince Cable is appointed business secretary. It is rumoured he will be part of a new ministerial committee responsible for creating banking policy, to be chaired by Osborne.
Regulation
Following rumours this morning that Tory plans to scrap the FSA in its current format had been abandoned, AMI director, Robert Sinclair, was taking a holistic view.
“Our view was always that the FSA was never going to be abolished, it was going to be morphed into something else,” he said.
“I see this coalition wanting to take wider view of how mortgages are provided. Currently some responsibility falls into the FSA’s remit and others fall to the OFT.”
Vince Cable’s appointment and future role in shaping banking policy could be crucial for the mortgage market.
Sinclair added: “Cable has certainly come out publicly saying he wants the whole of mortgage market regulation and credit brought into one place.
“Whether that’s the FSA or the Tories’ mooted proposal of the Consumer Protection Agency remains to be seen.
“But my understanding is that there is a fairly consistent view between the Tories and the Liberals that there should be one governing body looking after the mortgage market.
“That is what would make sense, especially in terms of Europe.”
The Council of Mortgage Lenders said Cable had shown understanding in the past and that they were looking forward to future debates.
A CML spokesman said: “We have worked closely with Cable in the past – he has shown some sympathy and understanding in the past on issues affecting the mortgage market and we are looking forward to working with him and other politicians on policy affecting this market.”
Economy
Last week Clayton Euro Risk European sales director, Michael Bolton, said the hung parliament would force the IMF to become involved in economic plans for the UK. But Sinclair is firm that this coalition could prevent that from being necessary.
He added: “We now have a stable government which intends to stay in power for the full five year term, which should make making early tough decisions easier.
“They should also get hold of the fiscal issues that should protect our credit rating and mean that as a country we can borrow at reasonable rates.”
If gilt rates remain stable, there will be less pressure on domestic interest rates Sinclair said, which should keep borrowing costs down for consumers.
The Bank of England released its quarterly inflation report this morning, which was relatively buoyant.
It said: “A pickup in UK GDP growth is likely, underpinned by the considerable monetary stimulus, a projected global recovery and the past depreciation of sterling.
“But the pace of expansion is likely to be tempered by the need for fiscal consolidation.”
Budget
The ConLib coalition will announce its new Budget within 50 days – a date right in the middle of the FIFA 2010 World Cup.
It is expected to contain a proposal to launch an independent commission which will look at breaking up the UK’s biggest banks, something the Liberal Democrats have been vocal about during their campaign.
Cable supports a definitive split between retail and investment banking operations.
CML communications manager Bernard Clarke said it was too early to comment on what might happen if there was such a fundamental shift in our banking industry.
He said: “We’ve worked with politicians of all hues in the past, and we’ll continue to work with the government as far as their plans impact on housing and mortgages.
“We will be looking at what emerges from the Queen’s speech.”
June 23 is just one date that has been suggested for the Budget announcement, traditionally made in the afternoon. But on that day England are due to battle Solvenia in an afternoon kick-off.
It was a point not lost on IFA Frank Cochran, who woefully added: “Let’s hope the new Chancellor doesn’t score any own goals.”
Meanwhile, the Building Societies Association welcomed the commitment in the Conservative/Liberal Democrat Coalition agreement to bring forward detailed proposals to “foster diversity, promote mutuals and create a more competitive banking industry”.
Adrian Coles, BSA director-general, said: “The commitment to promoting mutuals is warmly welcomed.
“Mutuals bring competition, diversity, democracy, efficiency, a lower appetite for risk and a higher appetite for service and trust, to a banking market suffering, in recent years, a deficit on all these measures.
“We look forward to playing our part in delivering an enhanced role for mutuals in this key area of the economy.”
