The fear is that a hung parliament will result in ineffectual government with much uncertainty, to the detriment of the economy as investors get cold feet. However, there is evidence from the Scottish Parliament, the Welsh Assembly and many governments across Europe (many of whom use proportional representation) that this isn't the case.
A Lombard Street Report said, after studying governments over the last century, "Coalitions have proven themselves to be surprisingly able to carry out major and painful fiscal reform. Perhaps more so than any political parties enjoying a majority and desperately wanting to retain it." While this can be good for deficit reduction, thought by many to be essential to a full recovery, it could result in much short term pain.