The City celebrates unexpected Conservative victory

As the exit poll results poured in shortly after 10pm on Thursday night, the mood in the Cavalry and Guards Club on Piccadilly turned from a wake to incredulous celebration as the exit polls predicted a near overall majority for the Conservative party.

Earlier in the evening, diners at the Mayfair gentlemen's club had wallowed in gallows humour as they declared that the election result could mark a fin de siecle for the pro-business and finance era in London.

They picked the finantonyest bottles of wine from the club's extensive cellar as they joked that this could be the last time they dined together, before higher taxes and a hostile Labour government led by Ed Miliband pushed them to disperse abroad.

This jovial Blitz spirit turned to real joy when it became likely that the fortunes of the Conservative party exceeded both the opinion polls and the party's dreams. "This could turn into the biggest celebration ever," said one Tory supporter, who hailed the "shy Tories" who had come out of the woodwork to support the party in the polling stations. "We can cancel the removal vans. Non-doms watching the exit polls are unpacking their bags," said his friend.

The City welcomed such a decisive result for the Conservative party. Hedge funds in particular had feared the a Miliband-led Labour government, which was likely to herald higher income tax, mansion tax and the removal of favourable non-dom tax status.

Manny Roman, CEO of Man Group, the UK's largest hedge fund, said: "A clear outcome and a level of continuity is certainly a positive thing for the UK economy, and the City will no doubt welcome what is expected to be a more business-friendly environment."

Chris Cummings, chief executive of lobby group TheCityUK, said "this is the time for ambitious policies" following the Conservative's outright win.

"Part of the competitive agenda has got to be about deregulation," he said. "In financial services there's a recognition that the regulatory pendulum has swung too far one way and it is time for it to come back to the centre."

Investors in the UK's largest retail banks breathed an immediate sigh of relief, with shares in Lloyds Banking Group and Royal Bank of Scotland surging 7 per cent and 6 per cent respectively on Friday morning.

A Conservative government provides a degree of continuity, bank analysts said, while avoiding some of the onerous tax proposals and restructuring plans mooted by other parties.

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"I think it is important that the government thinks about the competitiveness of the banking industry," said Anthony Browne, chief executive of the British Bankers' Association. "I know a lot of banks that have moved operations out of London already and made decisions not to invest here because of the bank levy."

He gave the example of smaller banks opting not to expand their UK operations to avoid crossing the threshold of having at least £20bn of liabilities above which they would be subject to the bank levy.

The Tory party's promise of an EU referendum was already discouraging banks from investing in the UK, Mr Browne said. "Some members have told me that their investment decisions have been affected by the referendum question. Businesses don't like that kind of uncertainty."

The surge in bank share prices and outright Conservative victory paves the way for the government to accelerate the sale of its remaining 21 per cent stake in Lloyds and begin offloading its 80 per cent holding in RBS.

George Osborne, the chancellor, had said before the election that an RBS disposal is "certainly something I would want to get moving on in the summer".

A senior figure at RBS said the government could launch a share sale in the fourth quarter, after the bank completed settlement with US regulators for manipulating foreign exchange markets and mis-selling subprime mortgage securities.

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"Osborne has long seen us as a running sore and wants rid of us - the feeling is mutual in many ways," said the person.

However, the Conservative victory was tempered by a realisation that a referendum on British membership of the European Union is now on the cards. For the City of London, Britain's relationship with Europe is now right at the top of the political agenda.

Mark Boleat, chairman of the policy and resources committee of the City of London, said: "Europe hasn't featured in the election debate at all. The big issue for the City now is the European position. A referendum is certain. The wish of business is let's get on with it, ideally fairly quickly."

Mr Boleat said that while there is greater confidence that Britain's EU membership would survive a referendum, "there is still a lot of hard work to be done" by the City to put forward the case for EU membership.

He added: "At the very least, EU membership is not damaging. In some sectors, such as car manufacturing and financial services, it's really important. None of the alternatives to EU membership look particularly palatable."

Sam Smith, chief executive of broker FinnCap, said: "The crucial thing for business is that the Conservative government can demonstrate quickly that it will continue to be pro business and pro growth.

"We need a government that will pledge to help businesses across the country compete on the world stage and help unite what appears to be an increasingly politically fractured and divided UK."

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