Morgan Stanley strategists have warned the UK that an uncertain result in next year's general elections could prompt a sell-off of sterling.
While the Conservative Party is currently ahead in the country's opinion polls, it has to turn over a large Labour majority in order to take power.
This has prompted fears of a hung parliament, with no clear leading party and a weak British government.
Two London-based analysts for Morgan Stanley, Graham Secker and Catharina Luebke-Detring, stated that the UK economy may suffer as a consequence of this happening.
"At the current juncture a lack of leadership from the top could have severe ramifications for foreign exchange and bond markets, a sharp drop in sterling and rise in gilt yields," they said.
Earlier this week, it was revealed that the UK is the only G20 country still in recession.
George Osborne, the shadow chancellor for the Conservatives, blamed the news on Labour's "disastrous" economic policies.
Vince Cable, Treasury spokesman for the Liberal Democrats, the UK's third political party, blamed an over-reliance on the financial sector for Britain's economic woes.
By Tony Aynsley
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