General Election 2010: City nervous as early results suggest hung parliament

THE prospect of a hung parliament pegged back gains for sterling and UK government bonds last night as investors fretted over the outlook for the UK's public finances.

In volatile trading and with no sign yet of a clear winner, the pound slipped back nearly a cent to $1.48 and 1.17.

June gilts – a form of UK government bond – also fell more than 0.5 per cent off earlier highs, suggesting fewer that investors are expecting a decisive government to start tackling the UK's massive deficit.

London's Liffe exchange opened at 1am – six hours early – to satisfy huge election night demand from major players, such as banks and hedge funds.

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David Jones, chief market strategist at IG Index, said: "The markets have swung right back in the last couple of hours."

After a series of results suggested the Tories had secured a big enough swing to secure an overall majority, both sterling and the gilts rallied strongly.

According to analysts, that reflected the sentiment of investors hoping for a decisive Conservative win in order for prompt action over the UK's record 164 billion deficit.