U.K. Election Stalemate, Pound Falls

Arthi Gupta, Mayank Mehta and Sanjay Barot
07 May, 2010
New York City

The pound slumps as the U.K. election fails to produce a clear winner. UK producer prices increase 5.7% and house prices fall 0.1% in April. RBS makes first quarter operating profit. Chaucer Holdings sees Deepwater Horizon losses at $25 million. easyJet plc traffic down 8% in April.

[R]4:00 PM London, 11:00 AM New York – The pound slumps as the U.K. election fails to produce a clear winner. UK producer prices increase 5.7% and house prices fall 0.1% in April. RBS makes first quarter operating profit. Chaucer Holdings sees Deepwater Horizon losses at $25 million. easyJet plc traffic down 8% in April.[/R]

U.K. stocks declined to a three-month low as the U.K. election failed to produce a clear winner to form a new government. Britain faced the stalemate of a hung Parliament on Friday, with no party likely to command an outright majority despite significant gains by the opposition Conservatives.

The Conservatives failed to gain an outright majority in the 650-seat House of Commons, creating the first ""hung parliament"" since 1974. With results in 637 constituencies declared, the Conservatives were on 301 seats, followed by Labor on 255 and the Liberal Democrats on 54.

The new government faces the daunting task of bringing down a record budget deficit of £163 billion for fiscal 2009/10.

Conservative leader David Cameron said Britain needed a government to reassure jittery markets that it was serious about tackling the deficit, which exceeds 11% of national output.

The U.K.’s top Aaa credit rating isn’t at risk from an election result that failed to produce a clear winner, Moody’s Investors Service and Standard & Poor’s said. Many believe political uncertainty could derail any quick plans to put UK public finances in order.

The pound slumped fueling concern that a new government won''t be strong enough to tackle the budget deficit. The pound fell as low as $1.4596, its weakest since late April 2009.

U.K. house price fell 0.1% month-on-month in April, after rising 1% in March, Lloyds Banking Group Plc''s Halifax division said today. House prices rose 6.6% on an annual basis in April, posting the biggest increase since October 2007.

Meanwhile, the Office for National Statistics said in a report that the British output price index for home sales of manufactured products rose 5.7% year-on-year in April, compared with a rise of 5% in March. The index rose 1.4% between March and April, mainly reflecting price rises in other manufactured products, petroleum products, and tobacco and alcohol products, the statistical agency said. Input price annual inflation rose by 13.1%.

Earlier in the day, Royal Bank of Scotland Group plc reported a narrower loss for the first quarter, as the UK-based bank''s impairments declined from the prior year, while total income rose. However, the company''s investment bank division reported significantly lower profit and total income owing to lower income from trading activities.

Prudential PLC said that its planned listings in Hong Kong and Singapore will be delayed as it continues to work through its proposed $20 billion rights issue with U.K. regulators. The rights offer was delayed earlier this week due to unresolved discussions with the U.K.''s Financial Services Authority regarding the insurer''s capital position.

Prudential is trying to raise the money to partially fund a massive $35.5 billion acquisition of the Asian life insurance unit from American International Group Inc. (AIG).

On Friday, Neptune Investment Management, a U.K.-based fund management firm with a stake in Prudential worth around GBP50 million, said it is trying to gather support for a vote of no-confidence in Chief Executive Officer Tidjane Thiam.

In London FTSE 100 Index closed lower 58.21 or 1.11% to 5,202.78 and the pound edged lower to close at $1.468 and edged lower to close at €1.152.

Gainers & Losers

BP Plc dropped 1.7% to 50.33 pence.

The Royal Bank of Scotland Group plc declined 8.7% to 13.85 pence. The global banking and financial services group said first quarter net interest income rose 0.3% to £3.53 billion from £3.54 billion a year ago. Net loss for the quarter was £248 million compared to net loss of £902 million a year ago.

Catlin Group Limited, the property and casualty insurer fell 1.2% to 332.70 pence.

Carpathian Plc closed unchanged at 0.17 pence after the commercial property investor said 2009 revenues fell 36% to €27.5 million from €43.3 million a year ago. Net loss for the year was €104.4 million or 45.0 cents per diluted share compared to net loss of €183.9 million or 79.7 cents per share a year ago.

Chaucer Holdings PLC dropped 2.2% to 44.50 pence after the underwriter said it estimates claims related to the Deepwater Horizon oil spill will cost it $25 million.

easyJet plc dropped 0.8% to 440.00 pence after the company says that passengers numbers were 7.6% lower in April as a direct result of the volcanic ash cloud. In total, 3.49 million passengers traveled with easyJet last month, down from 3.78 million in the same month last year.

Goldstone Resources Limited, the miner surged 11.7% to 5.00 pence.

Smurfit Kappa Group plc, an integrated manufacturer of paper-based packaging products said first half revenues rose 2% to €1.53 billion from €1.50 billion a year ago. Net loss for the first half was €17 million or 7.0 cents per diluted share compared to profit of €12 million or 3.7 cents per share a year ago.