A Labour Party government without a parliamentary majority would be a “nightmare scenario” for the pound, pushing it to its weakest level versus the dollar since March 2009 and close to parity with the euro, Investec Plc said.
Sterling may slip to $1.38 per dollar and trade one-for-one against the euro by the middle of the year if the May 6 vote produces “a minority Labour government,” Philip Shaw, chief economist at Investec in London, wrote in a note today. The country may face another election as soon as October under those conditions, he said.
Sterling slipped today as the Liberal Democrats overtook Gordon Brown’s ruling Labour party and opposition Conservatives in a YouGov poll for the Sun newspaper. The pound fell 0.7 percent to $1.5256 as of 2:30 p.m. in London, pushing its decline this year to 5.7 percent. It dropped 0.2 percent to 88.04 pence per euro.