Sterling slipped against the euro on Tuesday morning after the prime minister dismissed chancellor Philip Hammond’s warning that a no deal Brexit would cause serious damage to the UK economy.
The pound dipped by 0.2 per cent against the Eurozone currency, falling to an almost one year low of €1.1023, although it was up slightly against the dollar.
Connor Campbell, market analyst at Spreadex, said sterling had been “pinned back by Theresa May’s remarkably chilled approach” to a no deal Brexit.
“The talk of Britain leaving the EU without an agreement has become louder and louder in the last couple of weeks, with the PM doing little to calm the market’s fears on this front,” he added.
Ms May said a no deal exit from the EU “wouldn’t be the end of the world”, in remarks at odds with a letter written by Mr Hammond late last week in which he warned that GDP could be reduced by as much as 10 per cent if no Brexit agreement is reached. He also said a no deal scenario would require £80bn of extra borrowing.
However, on Tuesday, Ms May said: “As I understand, the chancellor was talking about a set of figures that, when they came out in January…[I said] they were work in progress at that particular time.
“Look at what the director of the WTO has actually said. He said about a no deal situation that it would not be a walk in the park, but it wouldn’t be the end of the world.”
She made the comments while travelling to South Africa for a trade visit.
The dip in the pound helped boost the FTSE 100, which rose 0.6 per cent in early trading on Tuesday.
However, Fiona Cincotta, senior market analyst at City Index, warned of more volatility in store for the UK market.
“The pound and the FTSE 100 index are both vulnerable to potential sell offs if a hard Brexit looks like an increasingly realistic prospect, regardless of the current strength of the UK economy,” she said.
“Traders will be keen to price in the risk to UK assets of a hard Brexit well ahead of the actual event itself, although last minute talks may still alleviate this somewhat.”
Ms Cincotta added that in traders are expecting more volatility in the FTSE and sterling over the months ahead as the Brexit deadline approaches and “hopes creep in – or erode – over the prospects of a deadline extension”.
