'Timebomb' UK economy will explode after election, says Albert Edwards

Bearish City strategist says coalition has left economy 'up to its eyeballs in macro manure' by failing to cut deficit, and that sterling will suffer

The UK economy is a ticking time bomb set to explode after the general election, according to a leading City commentator who has warned of a fresh crisis for the pound.

Albert Edwards, who heads the global strategy team at investment bank Socii(C)ti(C) Gi(C)ni(C)rale and is well known for downbeat views, chides the coalition for a legacy of "grotesquely wide deficits" in both the public sector finances and on the UK's current account - its overall trading position with the rest of the world.

As the UK general election rapidly approaches, we take a look at the UK economic situation. We say what we see, and after five years of the Conservative and Liberal Democrat coalition government, the UK economy looks like a 'ticking time bomb'waiting to explode after the election."

"At least back then [January 2008] the UK was not alone in reaping the sour fruits of economic mismanagement - the US and the eurozone periphery were all sailing in similarly unstable, leaky boats. But now the UK economy stands alone, up to its eyeballs in macro manure. Eventually the stench will fill the nostrils of currency markets with the inevitable result - another sterling crisis."

To the extent the UK economy has recovered, it is not because the public sector deficit cutting has worked as the government claim, but because, for the last three years, the government has quietly abandoned all pretence at fiscal cuts, kicking the can into the next parliament," he says.

Given the closeness of opinion polls, and the likelihood that all likely election outcomes will create some uncertainties - a Conservative-led government would raise risks of an EU referendum, a Labour-led government would raise risks over business costs and regulation - these policy worries are unlikely to fade quickly in our view."

Investors seem to have learnt from their experience with the Scottish Referendum back in September, where political risk was largely ignored, with nothing in the price until two weeks before the vote," he says.

"This time around the market has been acutely aware of political risk."

The political outcomes that worry the market the most would be outright victories. A Labour victory would bring market worries about a fiscal deficit to the fore, despite Labour's best efforts to allay such concerns. An outright Conservative victory would bring an EU 'in-out' referendum," he says.