By Lukanyo Mnyanda April 19 (Bloomberg) -- The pound and gilts fell after polls showing a surge in support for Britain’s third main political party deepened concern that next month’s election will fail to produce a clear winner. Sterling also slumped to its weakest level this month against the yen as the MSCI World Index of stocks declined for a second day amid the rising prospect of international probes into Goldman Sachs Group Inc., which is being sued by the U.S. Securities and Exchange Commission for fraud. Britain’s Liberal Democrats overtook the ruling Labour Party and Conservatives, according to a YouGov poll for today’s Sun newspaper. “The pound has reacted to the poll results,” said You-Na Park, an analyst at Commerzbank AG in Frankfurt. “It’s difficult to say how the results will be.” The pound slid 1 percent to $1.5212 as of 10:20 a.m. in London, declining by the most since April 6. It depreciated 0.5 percent to 88.27 pence per euro and was 1.4 percent weaker at 139.70 yen. Britain’s currency dropped by 5.7 percent against the dollar and U.K. bonds underperformed their German counterparts this year amid concern the election will produce a government too weak to tackle the country’s record budget deficit. The chances of the May 6 vote producing a so-called hung parliament are 78.9 percent, according to Royal Bank of Scotland Group Plc estimates based on opinion polls data. Gilts Slip The 10-year gilt yield rose 1 basis point to 4 percent, and the two-year note yield was little changed at 1.12 percent. The yield premium, or spread, investors demand to hold 10- year gilts instead of bunds with a similar maturity widened 3 basis points to 93 basis points. Gilts returned investors 0.9 percent this year, compared with a 3 percent gain for German bonds, according to indexes compiled by Bank of America Corp.’s Merrill Lynch unit. U.K. bonds also declined as Ernst & Young LLP’s Item Club raised its forecast for U.K. economic growth next year, making it more likely the central bank will start raising interest rates from a record low. Gross domestic product will rise 2.7 percent next year, up from an estimate in January for 2.5 percent, the researchers, who use the same model as the U.K. Treasury, said in an e-mailed statement. A report this week will probably show the economy expanded by 0.4 percent in the first quarter, according to the median of 31 economist forecasts surveyed by Bloomberg before the government’s April 23 release. “U.K. data should be bond negative,” analysts including Luca Cazzulani, a fixed-income strategist at UniCredit SpA in Milan, wrote in a client note. “Should GDP disappoint, it would create the case for less tough fiscal consolidation, with the result of a higher risk premium. If it comes in line with consensus, we should observe some pressure is response to the improved economic outlook.” To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

Source