Sterling was lower again this morning as the prospect of a no-deal Brexit loomed larger.
The pound was down 0.61% against the euro at €1.0885, with some expecting it to fall to parity against the single currency.
London share prices were also lower, with the blue-chip FTSE 100 index losing 1.99% to 7,259.50 and the FTSE 250, more representative of domestic British business, dropping 1.61% to 18,943.50. But these losses may have had little to do with Brexit, given stock markets were down also in Frankfurt, Paris, Amsterdam and Madrid.
“Coming down the tracks”
Prime Minister Boris Johnson has insisted that Britain will leave the European Union on 31 October with or without a deal.
The EU has said the agreement negotiated by Theresa May cannot be reopened, leaving the UK with a choice of this deal or no deal.
At the weekend, the Brexit Secretary Stephen Barclay urged EU leaders to change Mr Barnier’s mandate to allow him to revisit the agreement, otherwise no-deal is “coming down the tracks”.
Most MPs reject the idea of no deal but it is unclear if they could stop the UK leaving on 31 October without an agreement.
At the weekend, Mr Johnson’s adviser Dominic Cummings said that even if the government lost a vote of confidence in the House of Commons, the Prime Minister could call a general election for after 31 October, after which time Brexit would have taken place.
But former attorney general Dominic Grieve said MPs would be able to form an alternative government to that of Mr Johnson which could stop a no-deal Brexit.
Flight from sterling assets
The mounting Brexit crisis has taken its toll on sterling recently. A month ago, on 5 July, it stood at €1.1159 and, against the dollar, $1.2528. Its value against the yen was 135.905.
Three months ago, on 6 May, it traded at €1.1695, $1.3097 and 145.215 yen.
The pound’s steady decline has become a self-feeding process as investors and traders fear that a no-deal Brexit will make sterling assets less attractive and will also reduce demand for the pound as British goods are less in demand on world markets.
To an extent, sterling’s fall helps British exporters by making UK goods cheaper in local-currency terms. But with supply chains for British companies stretching across the exchange rate, it also makes some components more expensive when prices are translated into pounds.