Sterling suffers as Lib Dems waver
By politics.co.uk staff
The pound remains vulnerable as coalition talks continue, following its one-cent drop against the dollar yesterday.
Sterling began Monday morning at $1.843 before falling to around $1.50 after Gordon Brown announced the Liberal Democrats were entering into formal coalition talks with Labour as well as the Conservatives.
Uncertainty about the shape of Britain’s next government continues to threaten the pound, but the impact has been significantly muted by the ?750 billion euro stabilisation mechanism agreed in the early hours of yesterday.
The markets responded positively, with the FTSE 100 index up five per cent. Observers pointed out its rise was lower than those of other markets, but its biggest one-day gain in 18 months appeared impressive nonetheless.
Traders remain concerned that a Labour-Lib Dem coalition would be more unstable than the Tory-Liberal alternative, which would hold a securer majority in the Commons.
“It won’t be a sustainable government if the Lib Dems prop up Labour,” Roger Bootle of Capital Economics told the Guardian newspaper. “It won’t last long.”
An auction of gilt yields, which reflect the cost of the government’s borrowing, saw prices rising this morning.
