Concerns rise over strength of UK economy with figures expected to confirm recession
The pound has come under fresh selling pressure amid rising fears over the strength of the British economy as no-deal Brexit looms.
Sterling lost more than half a cent to fall as low as $1.245 against the dollar on Tuesday, continuing a slide on the foreign exchanges under way since Theresa May triggered the Conservative leadership race early last month.
It was the lowest level for more than two years barring a brief “flash crash” in currency markets in January, when a sudden drop in the pound was quickly reversed. The pound also slid by 0.4% against the euro on Tuesday to €1.11, while the FTSE 250, considered to be more domestically focused than the FTSE 100, fell 0.6%, or 114 points, to 19,467.
The pound has now fallen by 5%, or seven cents, against the dollar in the past two months as Boris Johnson, the frontrunner to replace May, says Britain could leave the EU without a deal at the end of October.
The pound has dropped from a high of $1.333 against the dollar in early March when hopes that a deal would be struck with the EU were highest.
The latest sell-off comes at a time of a stalling UK economy, as the boost from stockpiling before the original Brexit deadline begins to fade. Official figures due on Wednesday could show the economy shrank again in May, after slipping into reverse in April.
Economists are increasingly warning the economy probably contracted in the three months to June, raising fears of a technical recession – when the economy shrinks for two consecutive quarters – before Brexit. Firms have stopped placing as many orders after rushing to stockpile earlier this year, while the global economy has also faltered in recent months.
Fiona Cincotta, a senior market analyst at the financial trading firm City Index, said: “Recession concerns coupled with fears over Brexit are proving too much for pound traders to swallow. And who could blame them? The negative news keeps stacking up.”
Rupert Harrison, a portfolio manager at the investment firm BlackRock and a former senior adviser to George Osborne, said the risk of an “extreme” Brexit outcome had risen and currency investors were yet to fully recognise the risks.
“It’s even more uncertain than it has been at any point in the process,” he said.
City analysts warn that a no-deal Brexit would probably tip the economy into recession and would cause sterling to fall closer to parity against the dollar.
Han Tan, a market analyst at the financial trading firm FXTM, said: “While a significant measure of Brexit risks have already been priced, the pound may still have more of its downside exposed, should the prospect of a no-deal Brexit ramp up meaningfully over the coming months.”