Pound slumps to a 5-year low over fears of hung parliament
THE pound tumbled to a five-year low against the US dollar yesterday amid worries over the outcome of the General Election and signs that the economy is slowing.
On a bruising day for sterling, it sank below $1.46 to a level not seen since shortly after the Coalition came to power in 2010. The latest sell-off was triggered by the prospect of a hung parliament and disappointing manufacturing and construction figures.
But shares in London hit a new high – buoyed by a brighter global outlook and continuing support for the eurozone from the European Central Bank. The FTSE100 closed 74.41 points higher at 7,089.77 in a boost for investors and millions of households saving for a pension.
City commentator David Buik, an analyst at stockbroker Panmure Gordon, said: ‘Shares are on the up as low interest rates tempt investors looking for better returns into the stock market.’
While surging share prices could fuel a feel-good factor among voters, the fall in the pound will worry David Cameron and George Osborne. It is feared that official growth figures for the first quarter of the year – published the week before the election – will show the recovery is slowing.
With Britain seemingly on course for another hung parliament, experts said further falls in the value of sterling were on the way, with some predicting the
‘Traders are betting against the pound’
pound will slump to $1.40 for the first time since the depths of the recession.
The pound has now lost 6 per cent of its value against the dollar in just over six weeks and 15 per cent since last summer – making trips to the United States far more expensive for British tourists and businessmen.
It comes as elections expert Richard Rose, from the University of Strathclyde, said that a pact between Labour and the SNP was likely to collapse with a year, plunging Britain into chaos.
He said any deal between the two parties would place a ‘Sword of Damocles’ over British politics, with the SNP able to withdraw support at any time.
Professor Rose suggests that coalition talks after the election could take up to a month. And he predicted that the government will not survive and a second election will be required in July.
Professor Rose added: ‘If there is a Labour-SNP agreement, a “hung parliament” would have a Sword of Damocles hanging over whoever governs. This is because the SNP will retain the power to vote the government out of office when it thinks it appropriate.’
The uncertain outlook has spooked investors. ‘With the election on the horizon, the pound could drop further against the greenback,’ said Dennis de Jong, managing director at online currency trading firm UFX.com.
Nawaz Ali, of foreign exchange firm Western Union Business Solutions, said: ‘More traders are starting to bet against the pound as political uncertainty continues.’
The pound was also hit by disappointing figures from the Office for National Statistics. Factory output rose by just 0.4 per cent in February while total industrial production was up by only 0.1 per cent. Construction output fell 0.9 per cent.