LONDON BRIEFING:It was traders themselves who clamoured for the opening of the market in the early hours

JUST THREE hours after the polls close at 10pm tomorrow night, the City of London will begin to deliver its verdict on one of the most extraordinary elections of modern British political history.

In an unprecedented move, the London International Financial Futures and Options Exchange (Liffe) is to open for business at 1am on Friday, with traders staging an all-night session as the election results come in.

Business is expected to be brisk and highly volatile, as no clear result – even of a hung parliament – is likely to emerge until much later in the day. Trading in bond futures has never been a pursuit for the fainthearted but Thursday night/Friday morning will be especially fraught, with the eventual outcome subject to recalculation with every constituent result that comes in.

Given the prospect of no overall winner, the alternative – having to wait until dawn to trade – is seen as even more dangerous, however, and it was the traders themselves who clamoured for the formal opening of the market in the early hours. Thus they will be able to deal in government bonds – gilts – and in short interest rate derivatives and FTSE 100 futures contracts throughout the night. There will also be active trading of sterling on the foreign exchange markets.

For the first time on an election night, we can expect the television cameras to switch from studio pundit to City trader, with the first evidence of a hung parliament likely to trigger a brutal sell-off of British government bonds.

Any indication that there might be an outright winner, on the other hand, whether Labour or Tory, will trigger an equally frenzied rush to buy. It will be a spellbinding lesson in how the City works.

Depending on your view of the Square Mile and its inhabitants, Liffe’s decision to open all night was regarded either as a sensible precaution or a move that, in the words of one tabloid, would allow the “City vultures” to swoop and plunge the economy into turmoil if voters leave the country saddled with a hung parliament.

Mass dumping of gilts would certainly be bad news for a government that has to finance Britain’s debt mountain – borrowing costs would spiral and the nation’s coveted but fragile triple-A rating would be put further at risk, raising the calamitous prospect of even higher borrowing costs.

With less than 48 hours to go until the close of the polls, and with tactical voting now being openly addressed by the ruling Labour Party, the final outcome of this election remains too confused to call. But whatever happens in the end, it will be a night to remember.

Words, words, words

THE BANK of England’s monetary policy committee had been due to make its monthly decision on interest rates on election day but put its meeting back until Monday of next week for fear of being seen to influence the outcome at the polls, even though there is virtually zero prospect of any change to interest rates at the moment or to the bank’s stance on quantitative easing.

As a politically neutral appointee, the bank’s governor, Mervyn King, keeps a low profile during election campaigns for the same reason. His cover was well and truly blown last week, however, as comments made during a private lunch made the headlines.

Before the global, 24/7 internet era, something said on a relatively obscure Australian television programme by a relatively obscure economist would never have made it on to the UK election news agenda. But just hours after US economist David Hale told Australian television about a conversation he’d had with the Bank of England governor, King’s comments were being wired around the world.

According to Hale, King warned that whichever party wins the election will later be kept out of power for a generation because of the severity of the measures it will have to push through to rebuild Britain’s finances.

King quite properly declined to be drawn into the furore over the leaked comments last week, although they do have the ring of truth about them. And while there was some question over precisely when he might have made them – and the US economist’s motivation for revealing them – the Bank of England did confirm that the two men had lunched together.

It will make for a frosty first meeting between the leader of the new government and the central bank governor, although that little difficulty will be some way down a lengthy list of concerns worrying the prime minister. For the election losers, Mervyn’s words should provide some measure of comfort ahead of the next campaign.

Fiona Walsh writes for the Guardian newspaper in London