Sterling and the FTSE 100 both took a hit last night as Gordon Brown announced he will be stepping down as Prime Minister.
Following a shaky few days for UK markets, since last week’s inconclusive election result, the Labour leader said he would be stepping aside in an attempt to secure a last minute deal with the Liberal Democrat’s to form a government.
The news of a possible Lib Dem/Labour pact and continued political uncertainty has sent Britain’s finance industry into turmoil. And this morning saw the FTSE 100, which soared more than 5 per cent yesterday, sink back by 1.6 per cent.
The pound was 0.22 per cent lower against the dollar than yesterday and Government bonds also dropped in price meaning yields were rising, pushing up the cost of public borrowing.
However the pound was slightly up against the euro after the markets were kept afloat yesterday following the news that a £650 billion bail-out package has been agreed by the EU to help Greece out of its financial crisis.
Speaking to Reuters Chris Turner, head of FX strategy at ING said: “For sterling, a Conservative-Lib Dem coalition is probably the best outcome in that the coalition could have a clear majority without the need to rely on the smaller interest parties.
"The fact that a Labour-Lib Dem coalition is now a possibility has hit sterling and if talks are not resolved very soon, international investors will continue to reduce sterling exposure as political gridlock raises chances of another election this autumn."
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