City in turmoil as pound takes a battering
THE pound took a battering and stock markets nose-dived yesterday as the City braced itself for days of turmoil following the hung Parliament result.
And home owners were warned that the fall-out could mean higher mortgage repayments.
GENERAL ELECTION 2010: GET LIVE RESULTS IN YOUR AREA WITH OUR ELECTION MAP
JOIN OUR LIVE GENERAL ELECTION 2010 DEBATE AND HAVE YOUR SAY
GENERAL ELECTION 2010: BRITISH VOTING SYSTEM HIT BY QUEUES SCANDAL
GENERAL ELECTION 2010: POLLS SPELL MARCHING ORDERS FOR GORDON BROWN
Frantic City dealing rooms were hit by a huge wave of selling of the pound amid growing fears of political paralysis after it became clear that the election had produced no clear majority.
Volatility also reigned on the FTSE 100 index as uncertainty grew over a Conservative deal with the Liberal Democrats, combined with persistent fears over the Greek debt crisis and its contagion effect across Europe.
After a 100-point fall during a turbulent opening spell, the index finally ended the day 137.97 points down at 5,123.02 – a drop of 2.62 per cent. At one stage it was down a massive 4 per cent.
Political uncertainty over the first hung Parliament since 1974 saw the pound fall two cents against the euro to 1.15 and to 1.46 against the dollar.
But it was not just investors who were facing losses over the political crisis. Home owners could see mortgage costs pushed up by £60 a month if difficult decisions to curb the deficit are prevented.
Melanie Bien of Savills Private Finance said: “Markets hate uncertainty and, if talks drag on about a coalition government, this could easily push up the cost of a typical £150,000 mortgage by £60 a month.”
Worries that political deadlock would lead to delays in tackling the UK’s yawning deficit were eased slightly when Lib Dem leader Nick Clegg said the Conservatives should have the first stab at trying to form a Government.
Tory leader David Cameron signalled a potential deal, promising to work for “strong, stable government” which helped raise spirits in the City.
But not everyone was optimistic. Nick Beecroft, senior markets consultant at Saxo Bank, said: “This is the worst of all possible outcomes. It is very hard to construct a positive scenario for the pound, gilts or equities.”
And Richard Lambert, director-general of the CBI said: “The markets have been expecting this outcome, but uncertainty brings risks. The next few days will be critical.”
