Investors shun sterling after election result

City economists and business leaders yesterday urged all three parties to resolve political uncertainties quickly as the election result prompted a sell-off in the financial markets.

The pound slipped sharply against the dollar, falling almost three cents to $1.45, the lowest level for a year, as currency markets were unnerved by concerns about a hung Parliament. Investors fear there will be little progress made on setting out clear plans for reducing Britain's borrowing, which is on target to be higher than Greece's this year. The value of gilts – the bonds issued by the UK Government to fund its borrowing requirements – was also hit by the election result. As prices fell, the yields on 10-year gilts, the effective interest rate for the Government, rose by around 0.2 percentage points to 3.96 per cent.

The political uncertainty also hit the stock market which opened around 90 points, or 1.5 per cent, down. While all the market setbacks also reflected continuing nervousness about the debt crisis in Greece and the extent to which it is spreading around Europe, Ian Spreadbury, a fund manager at Fidelity, said the two issues were inextricably linked.