The pound and the London Stock Exchange are expected to take a battering today as traders respond to the ongoing uncertainty caused by the hung Parliament.
The Conservatives yesterday continued their talks with the Liberal Democrats over forming a coalition, but it looked increasingly unlikely that a firm deal would be in place before the markets opened this morning.
The lack of certainty over the composition of the next government is likely to fuel fears that there will be delays in tackling the UK's deficit.
Howard Archer, chief UK and European economist at IHS Global Insight, warned that a lack of a deal between the Conservatives and the Liberal Democrats by this morning would leave sterling, the FTSE and gilts “vulnerable to a major sell-off”.
Mr Archer said: “The more slippage there is on this, the more that the UK markets are at risk at being hammered.”
He said the markets would most favour a formal Conservative-Liberal Democrat coalition, and if they believed this was looking possible, or even likely, it may buy time for sterling, gilts and the FTSE. But he warned that if talks broke down completely, UK assets would be “particularly vulnerable”.