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Romney Win 'Could Boost Dow By 500 Points'

(c) Sky News 2012

The Dow Jones industrial index might be boosted by up to 500 points if Republican presidential hopeful Mitt Romney wins the election, it has been claimed.

The Centre for Economic Business Research (CEBR) said the bounce could occur before Mr Romney, who has trailed Democrat candidate Barack Obama in some polls, implemented his new policies.

"A President Romney has promised a radical departure, with bigger budget cuts and tax cuts," CEBR head Douglas McWilliams said.

"And he would be perceived as pro-business which might boost the financial markets."

Mr McWilliams added: "I would be surprised if a President Romney changed the economy as much in the short term as his policy platform suggests.

"Though there would be an initial market bounce of perhaps 500 points on the Dow (NYSE: DPD - news) because a Romney victory is not priced in."

The CEBR believes that quantitative easing (QE) – the injection of liquidity into the financial system – has been effective in boosting a return to modest growth.

"What is different is that in the US, QE has worked; in the UK it has been much less effective," Mr McWilliams said.

"Bank lending in the US is growing for both business and households. Even property lending, which for a long time had been in the doldrums and was holding back the US economy is growing."

Mr McWilliams, a former chief economic adviser to the CBI and chief economist for IBM UK, said US growth may accelerate by its newly exploited source of cheap energy - shale gas.

"The country is gradually becoming self-sufficient in energy which is very cheap by Western standards," he said.

"Because of increased drilling, oil is a fifth cheaper than in Europe (Chicago Options: ^REURUSD - news) while shale gas is available at the equivalent of a quarter of the price of oil."

However, the competitive edge given by the cheap gas is set to be exploited by key competitor China, which is could hold the world's biggest reserves of shale gas.

The Chinese government has announced a subsidy to spur the industry and it hopes to use shale gas for at least 6% of the market by 2015.

While Mr Obama has needed to broach the issue of tax rises within a divided Congress, Mr Romney has urged tax cuts to spur future growth – a concept the CEBR believes could be innovative amid a record deficit.

"In the longer term there is more scope for a President to make a difference and we could see the option of low spending and low taxation applied in a major Western economy," Mr McWilliams said.

"It could prove an exciting experiment."