Election fever is beginning to sweep Britain and with the state of the economy at the forefront of policy pledges it seems that savers may be voting with their cash in an effort to protect investments in stocks, pension funds and ISAs.

But what effect will the election have on investors, whatever the outcome?

Economic uncertainty

Interest rates are not expected to rise above the 2 per cent mark until at least 2011, and look certain to remain at an all time low of 0.5 per cent for the rest of 2010.

Action group Save our Savers today launched a campaign to challenge each party and individual candidate to spell out their savings policy.

Spokesman Revd John Strain said saving should be at the heart of a successful economy: “The current ISA system often cheats savers of their fair rewards. The Labour Party has a policy of introducing a new method of transferring cash ISAs. This is a positive step. The policy goes some way to enabling investors to move their accounts more easily and get the best deal possible. But it will not stop the practice of ISA providers cheating savers by not offering the equivalent of their leading non-ISA savings rate topped up by the tax breaks offered by the Government.”

He praised the Conservative Party for recognising the need to increase savings as a share of the UK’s GDP following the collapse of household savings and said that the pledge from the Liberal Democrat’s to increase the income tax threshold to £10,000 is good news for pensioners.

Consumer confidence has also taken a hit in the run up to the election according to research from Nationwide, suggesting that investors are unsure about the effect the outcome will have. Their monthly consumer index report shows that confidence fell nine points in March.

Martin Gahbauer, Nationwide’s chief economist, said: “With an election looming, more people will be unsure as to whether they will be better or worse off in the coming months, and recent concerns about the state of the economy and employment prospects could still be playing on the minds of consumers.

“Perhaps unsurprisingly, the movements during March are not dissimilar to the changes we saw in the run up to the 2005 election where consumers appeared to be uncertain about the UK economy and employment situation. However, consumer pessimism appears to be stronger this time around as the UK continues to recover from its deepest recession since the 1930s.”

Hung Parliament?

The prospect of a hung parliament has left investors panicking about the effect political deadlock will have on the stock market and sterling – markets traditionally hate uncertainty and the last time Britain saw a hung Parliament, in February 1974, the market fell 18 per cent in the run up to the election and 8 per cent the year after.

However, the Daily Telegraph has reported today that 50 economists have signed a letter backing Gordon brown’s economic policies, claiming that Tory cuts could lead to job losses and a slide back into recession.

Banking reform

Another key election issue is widespread banking reform. Voters are disillusioned with the system following anger about the banking bonus culture and the main parties are keen to be seen to rein the banks in.

According to Citywire Liberal Democrat leader Nick Clegg said his party would ban bonuses for loss-making banks, while the Conservatives favour a unilateral bank levy. Gordon Brown said he intends to ensure the taxpayer a good return on their investment in the banks, which were bailed out using public money.

Regardless of the result on May 6 it seems that Brown, Cameron and Clegg are all agreed on one point; viable plans for reducing Britain’s £167billion deficit must be at the forefront of their policies.

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