Further financial turmoil is expected as political stalemate continues in the UK and the EU crisis deepens.
Following last week’s indecisive election outcome the UK’s markets have been holding their breath as talks between the Conservatives and the Liberal Democrats continue, to try and reach a deal or form a coalition government.
The Conservatives gained the most seats but fell short of a majority, leaving the Liberal Democrats in a position to broker a power sharing deal.
Although both parties have said that reducing the deficit and getting Britain’s economy back into shape are a priority fears about the market’s volatility are mounting among investors.
On Thursday, the U.K. pound slumped against the dollar falling again in the early hours of Friday morning as the election results revealed a hung parliament. Prices of U.K. government bonds also slumped dramatically.
The FTSE 100 fell by 7.8 per cent throughout last week, including a 2.6 per cent drop on Friday.
And the Bank of England has announced this morning that the interest base rate will remain at its all-time low of 0.5 per cent.
Sterling also took a hit with the pound falling to a 13-month low against the dollar on Friday.
Duncan Higgins, senior analyst at foreign currency specialists Caxton FX said: “The political wrangling will begin in earnest this week, and credible signs of a working government could still be days, or even weeks away. In that time it is unlikely that we will see much reprieve for sterling.
“The uncertainty surrounding the next government has simply compounded pressure on sterling, and against the dollar it is continuing to drop. With the ongoing crisis in the euro zone and its longer-term ramifications also in focus, we are not too optimistic about sterling's short term prospects."
The crisis in Greece has also threatened to affect Britain after EU finance ministers met over the weekend in Brussels to discuss extending some emergency funding from EU members.
There are now fears that the UK taxpayer could have to foot a £15 billion bail-out bill to prop up the euro, despite not subscribing to the single currency.
However, Alistair darling has said there’s ‘no way that non-euro zone countries should be asked to underwrite the currency’.
And Dr Stephen Barber who advises Selftrade on economics says panic is unnecessary: “Markets, as everyone knows, dislike uncertainty and the 2010 general election has been as uncertain as any in a generation. The markets have been the focus of considerable attention with bond markets opening specially in the early hours of the morning as polls closed. Investors need not fret.
“While economic circumstances are fraught across Europe, the fact that no party achieved an overall parliamentary majority should not mean that prices come crashing around us.”
For more election news from Fair Investment click here »
© Fair Investment Company Ltd