Pound plunges against both dollar and euro

CBI says politicians need to ‘get house in order’ amid calls for Brexit talks freeze

The FTSE 100 climbed higher following the shock General Election result as the pound suffered losses against both the dollar and euro.

London’s top flight index ended the day up by more than 1 per cent or 77.35 points at 7,527.33 as investors digested news that Theresa May’s Conservatives had fallen short of an overall majority.

Sterling also plummeted off the back of the result, having dropped 1.7 per cent against the US dollar since Thursday evening to trade at 1.27 – its lowest level since mid-april.

Versus the euro, the pound also fell more than 1.1 per cent to 1.13 euros, to levels not seen since January.

The slump is a boon for multinational companies listed on the FTSE 100, as many of these firms tend to benefit from earnings in currencies that are stronger than the pound.

Markets had priced in a healthy Tory majority, giving Mrs May free rein to take charge of Brexit negotiations unhindered. However, others believe a hung parliament increases the likelihood of a softer Brexit, which could be supporting the pound and preventing it going into free fall.

Businesses and the City of London were sharply jolted by Britain’s general election outcome of a hung parliament, saying it was the worst possible result as it triggered both Brexit and wider economic uncertainty.

On currency markets, sterling slumped 2 per cent against the dollar, although the blue-chip stock market FTSE 100 index ended up as many major British companies make much of their earnings in US dollars so a weak pound has a positive effect on their profits.

Carolyn Fairbairn, directorgeneral of the CBI employers body, the leading business lobby group, said it was a “serious moment” for the UK economy and demanded that “politicians get their house in order and form a functioning government”.

She said: “Politicians must act responsibly, putting the interests of the country first and showing the world that the UK remains a safe destination for business. It’s time to put the economy back to the top of the agenda.”

The CBI said it felt this could only be achieved if the resulting government “doesn’t put the brakes on business, remains open to the world and sets out a pro-enterprise Britain”.

Thursday’s shock vote, resulting in no overall majority for what many see as a now diminished Theresa May, has worried business and the Square Mile about Britain’s hand being weakened in the impending Brexit talks with the European Union.

“With only ten days before Brexit talks begin, the UK needs to be fast out of the blocks,” Fairbairn added. “Agreeing transition arrangements and guaranteeing EU citizens’ rights should be early priorities to get the talks off to a good start and show to the world that trade and people come first.”

The Federation of Small Businesses (FSB) in Scotland called for a freeze in the EU negotiations until political stability was established.

Andy Willox, FSB’S Scottish policy convenor, said: “Scottish business wants reassurance that political turbulence doesn’t result in prolonged economic disruption.

“Indeed, we would argue that Brexit talks should be postponed until political stability is established.”

The City had mixed reactions, disturbed at May’s drubbing, but relieved that a left-wing Corbynite Labour administration had not swept to power with its plans to raise corporation tax rates and push up taxes for the better paid. “Some traders are wondering whether we will see a repeat of the post-eu referendum rally,” David Madden, market analyst at CMC Markets, said.

Mark Burgess, chief investment officer, said: “Clearly the political way forward is difficult, but from a market perspective it’s an ambiguous result. What we do know is that markets hate uncertainty and there will be volatility.”

The Footsie index closed up 77 points, or just more than 1 per cent, at 7,527.33.

mflanagan@scotsman.com