The pound fell to its lowest level against the euro in almost a year today after Prime Minister Theresa May refused to rule out a no-deal Brexit.
Sterling fell to as low as €1.1021 against the euro, its lowest level since 11 September 2017, in early trade before recovering marginally.
Theresa May told reporters on a flight to South Africa that a no-deal Brexit “wouldn't be the end of the world,” rebuffing warnings from chancellor Philip Hammond last week against leaving the EU without a deal.
The government last week published a string of documents laying out the risks from a no-deal Brexit for British businesses and individuals. While Brexit secretary Dominic Raab insisted the notices contradicted “misinformation” about the prospects for “no deal”, Hammond released a letter almost simultaneously highlighting internal government forecasts of £80bn in extra government borrowing under the scenario by 2033.
The possibility of a no-deal Brexit, in which trade defaults to World Trade Organisation (WTO) terms, has alarmed businesses on both sides of the Channel. WTO tariffs and non-tariff barriers, such as rules of origin, are considered by most business groups to be significantly less favourable for cross-border trade than the EU’s Single Market.
Investors see “no deal” as materially negative for the pound, with Bank of America Merrill Lynch analysts predicting a sharp fall to as low as $1.10 against the US dollar if the UK crashes out, down from just below $1.29 at the time of writing.
Industry representatives on both sides of the Channel have warned that there is a lack of preparation particularly among smaller firms which may not have the resources needed to plan for multiple outcomes.
Germany’s foreign minister, Heiko Maas, echoed those warnings today, saying, “regrettably, a hard Brexit is not off the table,” according to Reuters.
However, despite the warnings on the dangers of “no deal”, EU have so far given little sign of any softening in their attitude towards the British government’s position, agreed at the Chequers country residence.
French President Emmanuel Macron yesterday said that a Brexit deal should not come at the cost of European integration.