Investors’ fears were realised this morning as Britain woke up to the likelihood of a hung parliament.

Following yesterday’s general election no party has emerged with a majority large enough to form the next government.

While the Conservatives are set to win the most seats in parliament, it is highly unlikely the party can command an overall majority, with fewer than 50 of the 650 seats left to declare.

And as many predicted the UK economy, particularly investments, look set to feel the impact of political uncertainty as the pound crashed this morning.

Sterling fell by four cents overnight to $1.47 as the prospect of Britain’s first hung parliament since 1974 heightened fears that any incoming government would be too weak to deal with the national debt. The pound is continuing to slide against the dollar and has also fallen by 2 cents against the euro.

Shares have also taken a hit with the FTSE 100 plunging  1.71 per cent this morning and the price of UK gilts fell slightly after bond markets had opened for a special trading session overnight because of the uncertainties posed by the election.

Speaking to Thisismoney.co.uk Brian Hilliard, UK economist at Societe Generale said: “The markets have been patient with the UK, waiting to see the result of the election before judging the UK’s fiscal health but time is running out fast.

“There could easily be an attack on the pound and on UK government securities if the markets sense deadlock in the political negotiations.”

However, not everyone is panicking. Tony Lanning, at Gartmore, believes the result of the today’s election is unlikely to affect the UK stock market in the long term.

“With an ever-growing number of the country’s largest companies generating more of their income from overseas markets than from our shores, the direction and stability of the global environment will in all likelihood have a greater impact on the FTSE than events taking place on our own doorstep.

“As the outcome of the election is unlikely to unduly trouble equity markets, we feel investors will continue to be rewarded for owning risk assets versus cash over time.”

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