Few would bet against a big win for Britain's revived opposition Conservatives at the next election, but markets fear the worst case scenario for the investor could yet materialise - a hung Parliament.

Political risk in Britain is back on the radar after a recent attempt to destabilise Labour Prime Minister Gordon Brown from within his own party knocked the pound lower.

A hung Parliament - last seen in 1974 - or a tiny majority for the victor after an election which Brown must call by mid-2010 would send shivers through markets.

"Markets are hoping that come May or June, we enter a period of strong government," said Philip Shaw, chief economist at Investec. "Were that not to be the case, it's easy to envisage a run on sterling and gilts selling off."

Political analysts say the best the Labour government can hope for is to stop the Conservatives gaining a workable majority in an election which Mr Brown must call by June 2010.

The best for Labour, however, would be the worst for markets looking for tough action on the ballooning public finances.