The pound has been punished by the prospect of a hung Parliament as the currency took big losses against the dollar and the euro
BY SKY NEWS | MAY 7, 2010
Gordon Brown's announcement that he had asked the civil service "to provide support on request" to parties in talks over forming a Government triggered a fresh sterling sell-off amid worries over political paralysis.
Fears over delays in tackling the UK's yawning deficit sent sterling down 2% to a year-low below 1.45 against the dollar, with a 1% fall also seen against the euro at 1.14
But it recovered some ground minutes later as Liberal Democrat leader Nick Clegg said the party with the most votes and seats - the Conservatives - should have the first right to seek to govern.
The FTSE 100 also slumped around 1.5% to its lowest level since February as trading screens turned red across the City shortly after opening.
The election jitters added to already frayed nerves in stock markets which have been punished in recent sessions amid concerns over the Greek crisis.
Wall Street's Dow Jones Industrial Average fell 3.2% overnight - slumping more than 1,000 points, or 9%, at one stage before recouping some of the losses.
Experts added that a weak coalition between Labour and the Liberal Democrats could be the worst result for the UK's sovereign credit rating.
Currency traders warned the political uncertainty sparked by an indecisive election result was likely to mean more volatility for sterling in the days ahead.
Currencies Direct dealer Phil McHugh warned: "If something clear and decisive does not get through very quickly the ramifications are likely to be a further sell-off of the pound and a potential downgrade for the UK's credit rating."
Ratings agencies Moody's and Standard & Poor's both said the election outcome did not directly threaten the UK's AAA rating.
CBI director-general Richard Lambert said: "Business needs stability and wants to see a clear decision reached swiftly, which delivers a stable new government. The UK's route to economic recovery needs to be firmly established.
"The markets have been expecting this outcome, but uncertainty brings risks. The next few days will be critical."
