Fears for pound as coalition talks continue

Talks between the Tories and the Lib Dems concluded last night with no deal agreed and the chaos in government is likely to fuel fears that there will be delays in tackling the UK's deficit.

The situation is being exacerbated by the Greek debt crisis. Emergency talks were held in Brussels yesterday in a bid to agree a new "European stabilisation mechanism" to prevent Greece's problems spreading to other countries.

IHS Global Insight chief UK and European economist Howard Archer warned that sterling and the FTSE were "vulnerable to a major sell-off".

Mr Archer said: "With the markets being highly nervous and fragile in the wake of the Greek crisis and in the mood to penalise any country that is perceived to be falling short on its deficit reduction needs, it is of paramount importance that a credible commitment on how to tackle the dire UK public finances is in place sooner rather than later."

The pound suffered on Friday, plunging two per cent to below 1.45 against the dollar and 1.14 against the euro. The FTSE closed 2.6 per cent down at 5123, wiping 35.5bn off shares.