By politics.co.uk staff
A coalition between Liberal Democrats and the Labour party could lead to a downgrading of Britain's credit rating, City analysts have warned.
Experts at BNP Paribas have said: "Lab/Lib government is the least liked option by markets and would almost guarantee a downgrade of the UK sovereign [debt]."
At the moment Britain holds the highest AAA rating, which means the country finds it easier to borrow money on good terms. If the rating is downgraded it would be more expensive to raise funs on the money markets.
The BNP Paribas analysts said: "We believe that a downgrade under a Lab/Lib government is more than likely since both parties agree that early expenditure cuts could harm the economy. The alternative could be that both parties agree on tax hikes to be implemented with the next budget."
The pound dropped a cent against the dollar in minutes yesterday after Gordon Brown's statement on talks between his party and Nick Clegg's, and his announcement of his resignation.
Both rating agencies, Moody's and Standard & Poor's have denied fears that a coalition government would automatically lead to a downgrading, but the BNP analysts say they would want to look at the economic policies of any new government.
Miles Templeman, director general of the Institute of Directors, also wanted a speedy solution to the impasse.
He told the Guardian: "Political reform is an issue, but for this subject to overshadow the urgent necessity of creating a government that can deliver deficit reduction, demonstrates a lack of statesmanship from some of our politicians that is unacceptable under the economic circumstances."