Stocks and sterling surge as UK Conservatives take office

The London stock market has jumped, and the pound has surged against the euro at its quickest rate in six years, following the UK Conservative party's surprising success in yesterday's general election.

The party achieved a majority government, dispelling fears that there would be weeks of uncertainty and political instability following the results.

As the surprising results were announced last night and this morning, the pound jumped 2.1% to 72 pence against the euro, the biggest gain since January 2009. Against the dollar, sterling reached $1.55, the highest level since February.

The FTSE 100 gained 1.5% to lead equity markets, signifying the financial sector had relaxed as it became clear the UK would have a majority Conservative government.

Up until election day, polls had predicted a hung parliament with the Conservatives and Labour neck and neck. Weeks of tense coalition negotiations were envisaged, with fears that an unstable government would drive down sterling and lead to uncertainty in markets.

However, the latest BBC forecasts predict that David Cameron will return as prime minister with a slim majority of 331 parliamentary seats. Labour leader Ed Miliband has resigned in the wake of his party's resounding defeat.

The business and financial sector had grown increasingly concerned over the prospect of a Labour government, with fears that Miliband's economic policies could scare away foreign investors, reinforcing the party's anti-business image.

Headline Labour policies included reintroducing a 50p tax rate on earners of more than £100,000 and levying properties worth more than £2 million with a mansion tax of an average of £12,000 per year.

Conversely, the Conservative election campaign was built largely on the promise of economic security. Cameron's party have promised to cut income tax and have taken credit for the coalition government cutting the UK's national deficit in half over the last five years.

The surprise result was welcomed by John Longworth, director general of the British Chambers of Commerce (BCC), which represents thousands of businesses across the UK.

He said: "The Conservatives now have a clear mandate to take bold and important decisions, and must use it to help British businesses invest and grow. In return, business stands ready to work with the new government to deliver prosperity, jobs and sustained economic growth."

The housing market is set to boom as the threat of Labour's mansion tax subsided. Estate agents Savills predicted a 10% growth in house prices in London over the next five years and a deluge of foreign investors in high-end properties is also expected. Shares in estates agency firm Foxtons had jumped 13% already this morning.

Throughout the campaign, the Conservatives sought to cast themselves as the party of business while deriding Labour as hostile towards the sector. The Daily Telegraph published a letter signed by 103 business leaders which warned that Ed Miliband's party would put the economic recovery at risk and jeopardise foreign investment in the UK. Miliband had outlined plans to break up some of the UK's biggest banks and increase bank levy.

Lars Seier Christensen, CEO of Danish traders Saxo Bank, said: "Labour has been appropriately punished, even humiliated for the lack of a coherent economic policy and the wipeout in Scotland is plain embarrassing. But again, the SNP sends a message that prime minister David Cameron will also have to listen to."

Cameron promised a referendum on Britain's membership of the EU by 2017 if he was re-elected. Business leaders have expressed concern over the prospect of so-called Brexit but the issue is unlikely to have any immediate effect on markets.

Labour's unfulfilled plans to abolish zero-hours working contracts also gave a 5% boost to shares in retail chain Sports Direct, which is responsible for a fifth of all such contracts in the UK.