Sterling could be on course to reach its lowest ever level against the dollar if the country does not sort out the political crisis and secure a good deal with Europe, a leading economist has warned.
The chief economic adviser to insurance giant Allianz, Mohamed El-Erian, said the pound is "facing a double whammy" of economic and political uncertainty with the pound set to come under sustained pressure due to weak fundamentals including a large current account deficit.
"The future value of sterling is a function of how and how quickly the structural uncertainty is resolved. If Plan B is delayed and/or doesn't involve much of a free trade set-up with the EU, it is not inconceivable for sterling to head to parity with the US dollar," he said.
The last time sterling approached level-pegging with the dollar was during 1985 when it reached $1.05 at one point. The pound is currently trading at its lowest level since that year, dipping below $1.28 at one point yesterday.
A number of analysts including at Goldman Sachs, Deutsche Bank and HSBC have predicted sterling will fall below $1.20 by the end of the year.
The pound was up this morning, however, rising 0.5 per cent to $1.2994.