Britain’s political leaders must ease the post-election deadlock by the end of the week to avoid unsettling investors, said Richard Lambert, head of the U.K.’s biggest business lobby.
“I would think people would be feeling pretty uncomfortable if by the weekend the position wasn’t clearer than it is now,” Lambert, director general of the Confederation of British Industry, said in an interview with Bloomberg Television in London yesterday. “I would guess days” remain to clinch an agreement rather than weeks, he said.
Prime Minister Gordon Brown of the Labour Party pledged yesterday to step down, derailing negotiations between the Conservatives and Liberal Democrats to form an alliance after the inconclusive May 6 election result. The pound dropped by a cent against the dollar after the announcement threatened to delay the formation of a new government, hampering debt- reduction plans.
“The game has obviously changed quite significantly since Mr. Brown put all his chips on the table,” said Lambert, who is a former Bank of England policy maker. “What’s important is that all three political leaders have said in turns that the number one task for the next government is to reduce the deficit.”
The pound declined against the dollar today and was down 0.3 percent to $1.4798 as of 8:01 a.m. It rose as much as 1.7 percent yesterday before paring its gain after Brown’s comments to close up 0.3 percent.
The impasse in coalition talks after four days of negotiations has raised concerns that plans to cut Britain’s deficit, the biggest in peacetime, may be delayed just as Europe grapples with a sovereign debt crisis. European Union leaders yesterday agreed to a package worth almost $1 trillion to quell market turmoil sparked by concern on Greece’s borrowings.
The U.K. still has a period of grace to announce debt- cutting measures before the nation comes under pressure from investors, Lambert said.
“The U.K. also has time,” he said. “It has a number of advantages, it has its own currency, its debt-to-GDP ratio is lower than the euro-zone average, so it has got time. But if nothing happens, if the current deficit is allowed to accumulate over time, then that would put pressure on the U.K.”
Lambert spoke as he attended an event organized by Freshminds, a recruitment consultancy.