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£ sinks on prospect of hung parliament

The pound has fallen as the markets contemplate the prospect of a hung parliament after the General Election. The drop follows an opinion poll published in the Sunday Times showing that the Conservatives’ lead is down to just two percent over Labour. If that is how the votes are cast on polling day – expected to be 6th May – Labour would end up with enough seats to lead a hung parliament, with neither of the main parties in the majority.

This has unsettled financial markets. The concern is that with a weak government, there could be a failure to agree how to cut Britain’s huge budget deficit.

 Brown has warned that attacking the deficit too hard, too soon, will threaten a fragile economic recovery. Cameron and the Conservatives claim that the deficit – expected to amount to 12pc of gross domestic product this year – is an even bigger threat to a sustainable recovery.
They are both correct. Their problem is they do not know how to raise revenue non-destructively. They could always ask us how to do it, though we would not like to come up with a suggestion for a quick fix just now. If Labour had listened to us in 1995 – and we did try to talk to them – we should not have been in the present mess today.