Unsettled, risk of storm

7 May 2010 By Ian Campbell

The election nonresult is troubling. The next government is likely to be too weak to tackle the fiscal deficit with sufficient vigour. The uncertainty may hurt growth and prod rating agencies towards downgrades. The greatest threat: that gilts follow the pound and slump.

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The UK will have its first hung parliament since 1974: no party can govern without the support of another party or parties. Still incomplete results show that the Conservatives will be the largest party but will fall some way short of the 326 seats required to command a majority.

The pound sterling slumped, losing two cents to trade below $1.46 early on May 7, a oneyear low against the dollar, and down from over $1.52 on May 3. The pound had weakened considerably on election day as global markets fell. UK shares were down by about 1.4 percent in early trading.

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