Frankly the competition in Gov econ is tough, but there are no worries so long as your referee could show his/her confidence in you that you would achieve good grades in the coming exams. Although LSE states in one of their replies that they prefer applicants who achieve the required grades in the first exam sitting, they would not give penalty to those who resit. You might be at a little disadvantage but if you have not submitted your app, do discuss with your referee, get him/her to explain your situation, and work really really hard on your ps, the ps would be a tie-breaker between you and similar applicants.