Pound suffers record 10th day of decline against euro
Mounting fears of no-deal Brexit weigh on sterling as Tory Eurosceptics line up to replace Prime Minister
THE pound suffered a record tenth straight day of decline against the euro as top analysts warned that mounting fears of a no-deal Brexit or general election could send the currency sliding back towards three-decade lows.
Sterling extended its tumble after cross-party talks collapsed without a breakthrough and Theresa May agreed to set a departure date.
Analysts fear her exit will trigger a chain reaction of events that could lead to a hard Brexit or an election that propels Jeremy Corbyn into Number 10.
The two-week slump has wiped almost 3pc off the pound’s value against the euro and sent sterling sliding below $1.28 against the dollar to its lowest level since January.
The pound’s current losing streak versus the euro is the longest since its rival’s creation in 1999. It sank a further 0.5pc yesterday to a three-month low of €1.1397.
Derek Halpenny, European head of research at MUFG, warned that it is now “very feasible” that sterling could drop to the “low $1.20 region against the dollar” ahead of the Brexit deadline if frontrunner Boris Johnson wins the Conservative leadership race.
“A lot of the scenarios move you to the no-deal risks coming back into play,” he added.
A pullback back to $1.20 would represent a 6pc slump from its current levels and knock sterling close to the 31-year low hit during the flash crash in October 2016.
“We could be trading at $1.25 when Theresa May resigns and from there it depends on who gets through [the leadership contest],” said Jordan Rochester, foreign exchange strategist at Nomura International. He predicted the “pound would fall lower for any leadership candidate apart from anyone who is a Remainer”. The market will start to price in a “higher chance of an accidental no-deal Brexit or a general election” if Mr Johnson wins, Mr Rochester said. “Indicative votes are the only market positive I can see in the next few days and weeks.”
After the breakdown in cross-party talks, City forecasters are slashing their estimates for UK growth.
Brexit is “the problem that keeps on giving” for the economy, said Robert Wood, chief UK economist at Bank of America Merrill Lynch (BAML).
He warned that intensifying uncertainty will hold down GDP growth, predicting a sharp slowdown from a strong 0.5pc in the first three months of the year to just 0.1pc in the second quarter and a little more in the third.
The Wall Street bank also slashed its growth forecast for 2020 to 1.1pc from 1.6pc, representing a slowdown from 1.4pc in 2019.
Business groups aired their frustration at the failure of cross-party talks to break the political deadlock.
Carolyn Fairbairn, CBI director-general, said MPS should work non-stop to resolve the impasse.
“The May parliamentary recess should be cancelled and used to agree a deal as soon as possible – whether through indicative votes or the Withdrawal Agreement.”
Stephen Phipson, head of manufacturing trade body Make UK, warned that “prolonging the uncertainty is turning a bad situation for manufacturing into something even worse”.
“The consequences of this are almost daily announcements of the great damage being done in terms of lost orders and an evaporation of confidence in the UK as a place to invest.”