City perspective: Pound falls in market sell-off

With Conservatives falling short of winning and fears over how debt "contagion" in Europe will weigh on the London market, the FTSE index fell more than a 100 points during a turbulent opening spell yesterday morning.

The lack of a decisive election result also sent the pound plunging two per cent – to less than 1.45 against the US dollar and 1.14 against the euro at one point as political manoeuvring began.

Greece's debt crisis also again hit many stock markets with the FTSE 100 index enduring its worst week since March 2009, falling 7.6 per cent.

The weakness of the pound re-ignited inflation fears, as factory gate prices increased at their fastest pace for 18 months.

On election day itself, financial stocks were hit heavily, with part-nationalised Royal Bank of Scotland falling by 3.83p to 44.4p or eight per cent.

Ratings agency Standard & Poor's – which has been threatening to strip the UK of its triple-A sovereign rating – offered some respite by saying they would reserve judgment on a new Government's fiscal rescue plans until the end of the year.

Meanwhile, commentators said they did not expect mortgage rates to rise significantly as a result of the uncertainty resulting from the hung Parliament.

Lenders were slow to respond to the result of the General Election – instead continuing to sit on their hands as they waited to see who would form the next government.

Suspicions that some lenders might pull mortgage deals or raise their rates in response to the inconclusive election result proved unfounded.

Activity in the mortgage market has been subdued since the beginning of April as lenders waited for the outcome of yesterday's vote.

The average availability of mortgage deals nearly doubled during the month to 30 days, while there were also 26 per cent fewer product changes.

Ray Boulger, senior technical manager at independent mortgage brokers John Charcol, said: "The movement (in gilt yields) is not sufficient to push mortgage rates up.

"As far as tracker rates are concerned, we still see no reason for the Bank of England to change rates in the short term."

A spokesman for the Moneyfacts.co.uk website said: "A hung parliament was predicted, so lenders are waiting to see what impact it has on markets and on the economy as a whole."