Theresa May said Brexit negotiations are at an impasse today, in a speech where she called for “respect” following Brussels’ snub to her Chequers plan yesterday.
Her speech accelerated sterling's losses, with the pound dropping from 1.33 against the US dollar at the start of the day to 1.31 following her talk, and from 1.13 to 1.11 against the euro.
The pound's 1.5 per cent plunge is its steepest one-day fall this year, and it sent the FTSE 100 soaring by the same amount.
Speaking from Downing Street, the Prime Minister gave a short speech in which she doubled down on her Brexit strategy despite European Council president Donald Tusk dismissing it yesterday in Salzburg.
"Yesterday Donald Tusk said our proposals would undermine the single market. He didn’t explain how in any detail or make any counter-proposal. So we are at an impasse," May said.
She demanded Tusk give reasons for rejecting Chequers, adding that the EU's alternative – of European Economic Area membership in exchange for abiding by its laws – would "make a mockery of the referendum".
EU proposals to effectively keep Ireland inside the Customs Union to avoid a hard border as the UK leaves the EU were "unacceptable", she added, as they would break up the country.
"Anything which fails to respect the referendum or which effectively divides our country in two would be a bad deal, and I have always said no deal is better than a bad deal," she added.
Instead, she argued her Chequers plan – which promotes "frictionless trade in goods" – is the best option, despite it coming under fire from major Brexiteers like former Brexit secretary David Davis.
Her plan was squashed by EU leaders in Salzburg yesterday, with Tusk stating simply: "It will not work."
May said the UK would continue preparing for a no deal scenario, admitting that talks between Britain and the bloc are at an impasse.
May also vowed to guarantee the rights of the 3m EU citizens resident in the UK in the event of no deal, and told Northern Ireland she would fight to prevent a hard border.
She called on the EU to treat the negotiations respectfully, after Tusk yesterday posted a mocking joke about May on his Instagram account.
"Throughout this process, I have treated the EU with nothing but respect," she said. "The UK expects the same. A good relationship at the end of this process depends on it."
Chris Beauchamp, chief market analyst at IG, said of the pound's plummet: "We are witnessing familiar Brexit reaction in market terms, as a cliff-dive for the pound is matched by a leap higher for the FTSE 100 as the Prime Minister talks tough after her humiliation in Salzburg.
"Given the steady losses in GBP/USD since April, today’s move could mark the resumption of the downtrend. And for once the FTSE 100 is the star performer among the indices, although given that we are seeing bullish momentum fade slightly after a very healthy week this bounce may be short-lived."