Pound slides after Johnson reveals plan to suspend parliament
The pound has fallen sharply after Boris Johnson announced plans to suspend parliament for five weeks before the Brexit deadline, raising the chances of a no-deal exit from the EU.
Sterling was under sustained selling pressure on Wednesday morning, falling by more than a cent against the US dollar to trade below $1.22, and by almost as much against the euro, to €1.0964.
As the pound slumped to the lowest level in six days against the dollar on the global money markets, the prime minister’s plan was greeted with anger by MPs across the political divide and set alarm bells ringing for business leaders.
Craig Erlam, a senior market analyst at the financial trading firm Oanda, said: “This isn’t the first we’ve heard of these dirty tactics but it was maybe hoped that such undemocratic measures would not be needed or used. Either way, it certainly caught markets off guard.”
As the pound sank the FTSE 100 rallied to close 25 points higher at 7,114. Shares in the index of major UKlisted companies typically rise when the pound falls, as the firms in the index generate much of their revenue in foreign currencies.
The more domestic-focused FTSE 250 index dropped by about 0.7%, and firms in sectors heavily affected by changes in the UK economy lost ground.
Shares in housebuilding companies tumbled. Persimmon, one of the UK’s biggest builders, dropped by 2.85%, while Taylor Wimpey fell by 3.6%.
Johnson’s move to shut down parliament was viewed by the City as sharply raising the chances of no-deal Brexit, in a development that economists warned could strike a hammer blow for growth at a time when the UK is already coming under pressure as the world economy slows.
Analysts said the fallout from the decision could also lead MPs towards triggering a snap election, raising the prospect of heightened political turmoil for UK firms.
Seema Shah, chief strategist at the investment management company Principal Global Investors, said: “From an economic point of view, actively pursuing a no-deal Brexit through suspending parliament is tantamount to actively pursuing a recession.”
Business leaderssaid parliament needed to avoid no-deal Brexit to prevent major disruption for firms.
Adam Marshall, the director general of the British Chambers of Commerce, said companies felt Westminster was playing an endless game of political chess while the future and the health of the UK economy hung in the balance.
“Despite the noise, none of the events of the last few days have given businesses greater confidence that this will be achieved. Given this, it is essential for government and its agencies to further boost support for businesses through any scenario,” he said.
“Once again, businesses will have to try their best to prepare for an unclear future as the political process goes down to the wire.”
Labour and the unions said a nodeal Brexit could prove disastrous for firms and harm the employment prospects of British workers. Len McCluskey, general secretary of the Unite trade union, said the future hung in the balance for jobs at major UK manufacturers, including at Vauxhall in Ellesmere Port.
“Boris Johnson’s plan to shut parliament is nothing short of a no-deal Brexit coup which imperils the livelihoods of millions of workers and the future prosperity of communities across our nations,” he said.
The pound had rallied in recent weeks as Johnson appeared to be manoeuvring to strike a new deal with Brussels, after meetings at the G7 summit with the German chancellor, Angela Merkel, and the French president, Emmanuel Macron.
Sterling has been on a rollercoaster since the elevation of Johnson to No 10, falling sharply in July as one of the worst-performing major currencies in that month.
The pound has tended to rise when hopes of a deal have mounted and has sold-off sharply whenever the chances of a compromise have diminished. It remains down more than 17% against the dollar compared to the eve of the EU referendum in 2016, with a fall of about five cents against the dollar this year.