What the markets are banking on

Hamish McRae’s column today contains news of a warning that I had not seen reported elsewhere:

‘The capital markets division of Royal Bank of Canada yesterday put out a ranking of sovereign risk – the risk that a country cannot repay its debts.

Ireland and Greece came at the top, as you might expect, followed by Portugal and … yes, the UK. On that ranking we are more of a risk than Italy, France and Spain. That is just the view of one bank but it echoes those of others in the business of advising savers around the world of the risks of investing in different countries.’

My concern is that the markets have priced in a Tory victory and a tough emergency Budget. Anything less than that — whether it be a hung parliament or a budget that fails to meet the markets’ expectations — and we could be heading towards the disaster of a credit downgrade.