There is little to split the Conservative and Labour parties in the polls ahead of 7 May, when Britain's voters will decide who will govern their country for the next five years.
So there is every chance of a hung parliament and another round of political wrangling to form a government, just like in 2010, and all the uncertainty that comes with it. The concessions that would have to be made to minor parties, such as the Liberal Democrats and SNP, for Labour or the Conservatives to secure power make it hard to predict the direction of government policy.
If there is one thing markets hate, it is uncertainty. Here is what some market analysts have had to say in recent days about where the election campaign is heading and what it means.
The UK's near-term outlook is deceptively positive: growth close to 3%, unemployment back to normal and positive wage growth. But under the hood lie several long-term challenges that the UK has yet to address: still-weak household finances, rising inequality, a large structural budget deficit and chronically weak productivity growth. Add to that the considerable political uncertainty and volatility that is likely to result from next month's general election, and the UK faces a cocktail of structural problems without, it appears, a sure-fire strategy to deal with them.
A hung parliament at elections may undermine the ability to address these structural issues. Elections will likely result in a hung parliament, with the winning party having to rule by coalition or in a minority – neither scenario would yield the stable government needed to implement difficult structural adjustments. Political uncertainty could also reverse capital inflows, which may weaken the housing market. This could in turn hurt banks and households, given high leverage and limited headroom to absorb rate rises.
Polls still suggest that the 7 May general election will produce a hung parliament. In our view, there is a rising chance of a minority government (either a single party or a minority coalition with the Lib Dems) that governs on a "confidence and supply" basis. There is a sort of folk memory in the UK – largely based on the 1970s experience – that minority governments are much more risky than majority governments. We doubt this applies any more.
The riskiness of minority governments has been reduced by the Fixed-Term Parliament Act, independent central bank and clearer fiscal framework. A minority government might mean political gridlock, but – with the economy growing solidly – gridlock probably would not be risky in economic terms. Moreover, the UK will face post-election policy risks – over potential Brexit with a Conservative-led government or tax/regulation with a Labour-led government – with either a minority or majority government.
Our economic outlook would probably be fairly similar (solid growth with low inflation and falling fiscal deficit) under all of these scenarios. We doubt the SNP could force a Labour-led minority government to run a loose fiscal stance. Moreover, Brexit risk (which we view as a major potential problem for the economy) might be less under a minority Conservative-led government than a majority one.
As we have previously identified, we see a key risk in this election as being how the market assesses the UK's continued membership of the European Union (EU). The probability of a referendum on EU exit may well result in a period of uncertainty, even if the eventual vote was expected to go in favour of the UK remaining in the EU. In this environment, UK assets may come under some pressure.
Arguably membership of the EU is one of the largest 'existential' questions in the General Election campaign. While the costs and benefits of EU membership are actively debated, the market is likely to conclude there would be some cost from exit, or at least uncertainty over the outcome could be a risk for the economy. As such this is an area where the outcome of the 7 May election could be relatively significant. A Conservative-led government is likely to push ahead with an EU referendum plan, while any led by the Labour Party will not.
John Wyn-Evans, head of investment strategy at Investec Wealth & Investment
The electorate faces some stark choices as to how it wishes to see the country governed, and also how it views the future of the UK. The Labour and Conservative parties are now as far apart in policy terms as they have been since the 1992 election, when the Tories unexpectedly held onto the reins of power.
Labour promises greater redistribution of wealth and less austerity, while the Conservatives remain a more "market-friendly" choice. However a vote for the Tories is effectively a vote for a referendum on the UK's membership of the European Union. If Labour needs the help of the SNP to gain a majority, then that will raise the prospect of yet another Scottish referendum.
It is likely that the election will lead to more immediate uncertainty. Outcomes range from a majority (very low probability) to a minority government, with several shades of coalition in between. A second election is not out of the question. The outlook for investors, then, might appear equally uncertain.
However, our work suggests that the range of outcomes is far less broad from a market perspective. Long-term investors will find little excuse to make big portfolio shifts, although traders might be able to game the outcome. Political developments overseas, including, but not confined to, Europe, Russia, the Middle East and China will have more impact.
Michael Stanes, investment director at Heartwood Investment Management
Ostensibly, the most 'market-friendly' outcome tends to favour the election of a centre-right government, but in this election it is not so clear cut.
The deficit reduction plan will be a key focus, particularly for the bond and foreign exchange markets. Both of the main parties are signed up to a deficit reduction plan, but we would expect more bond and foreign exchange volatility if a Labour minority government is elected with SNP support, since Labour has pledged a slower path to deficit reduction, while the SNP is in favour of increasing borrowing to fund increases in public spending.
That said and if the Conservatives are returned to power, there could be significant constitutional issues ahead.
First, the UK's standing in the European Union would be at risk as an 'In/Out' EU referendum would likely raise the spectre of a 'Brexit' being priced into markets. Sterling and the UK gilt market would probably respond negatively but other asset classes could be affected, such as property. The re-election of the incumbent coalition government could potentially neutralise the European issue, as the Liberal Democrats would likely seek assurances that Britain's membership of the European Union is safe.
Secondly, there is also the issue of the Union. In the event of a Conservative majority government (or one backed by Ukip) and the SNP winning convincingly in Scotland (as the current polls suggest), this could lead to fresh impetus for another Scottish independence referendum. As we saw last September, the Scottish independence referendum had a de-stabilising impact, albeit short lived, on sterling and the bond markets.