Shares slide £31bn as markets fear a stalemate

SHARES in London tumbled yesterday as the prospect of another hung parliament sent j i tters through the financial markets.

The FTSE 100 index of blue chip stocks was down nearly 125 points at one stage – reducing the value of Britain’s leading companies by £31.5billion.

The index finally closed 46.79 points down at 6886.95 – its lowest level for more than a month.

The latest sell-off took losses since early last week to three per cent or £55billion as the election campaign took its toll on the value of pension funds and savings for millions of voters.

Tony Cross, market analyst at online trading firm Trustnet Direct, said it was ‘a day of jitters’ on the stock market as investors waited for the polls to close.

andy McLevey, head of dealing at broker Interactive Investor, said: ‘Uncertainty

‘Period of intense uncertainty’

surrounding the outcome of the UK election is preying on sentiment.’

It was also a turbulent day for the pound amid worries about political paralysis or a weak Labour government propped up by the Scottish National Party.

Sterling swung wildly on the foreign exchange markets, dipping below €1.34 against the euro and $1.52 against the dollar before recovering. analysts have predicted that sterling could fall by as much as 10 per cent in the coming days if a stable government does not emerge quickly.

David Madden, market analyst at City trading firm IG, said dealers are ‘avoiding the pound like the plague’.

Bank of england and Treasury officials are understood to have discussed potential responses if an extended period of stalemate poses a threat to financial stability or the economy.

The central bank’s monetary policy committee that sets interest rates meets at its headquarters in the City of London today.

Steven Bell, chief economist at fund manager F&C Investments, said: ‘The result of this election could have major implications for UK financial markets.

‘Before we get a government, and before they announce their policies, we may well have to endure a period of intense uncertainty.

‘Just how much instability we get is as uncertain as the outcome of the election itself.’

Many investors and businesses have pinned their hopes on a Conservative-led government. It is feared that a Left-wing all i ance between Labour and t he SNP would be bad for business and the economy.

David Buik, market analyst at Panmure Gordon, said: ‘The best outcome would be a Conservative majority or another coalition between the Tories and the Liberal Democrats to continue the recovery process. But any unholy alliance between Labour and the SNP would ring the market’s alarm bells.

‘Sentiment will be destroyed and investment will dry up.’

John Cridland, director general of the CBI business lobby group, said: ‘What businesses will want to see is that any period of uncertainty around negotiations is kept to a minimum and for all parties to prioritise pro- enterprise policies that boost growth and jobs for all.’

andrew Witty, chief executive of pharmaceutical giant GlaxoSmithKline, Britain’s sixth largest company by stock market value, said: ‘What is important to us is clarity as soon as possible.’

The cost of protection against overnight swings in the value of the pound jumped to its highest level since the last election in 2010. hedge funds and other investors often buy insurance against violent moves – with the cost of that protection rising when volatility increases.