The pound tumbled to its lowest value against the dollar in 27 months on Monday, as markets took fright at the government’s ramped-up plans for a no-deal Brexit.
Sterling (GBPUSD=X) was down 0.8% against the dollar and the euro in afternoon trading, sinking below $1.23 and just above €1.10. The pound was worth $1.70 against the dollar five years ago.
Britain’s currency has slid significantly in recent months as investors have braced a for a Johnson premiership and a no-deal Brexit likely to heavily damage the UK economy
Recent days have seen a significant escalation of rhetoric from the UK government, with Michael Gove, the minister in charge of no-deal planning, saying it was a “very real prospect” on Sunday.
Several ministers in new UK prime minister Boris Johnson’s government have said they are “turbo-charging” preparations for a radical rupture with the EU, with up to £1bn in new spending announced over the weekend.
A no-deal Brexit is increasingly seen as the default option despite countless warnings it could be catastrophic for the UK, as Johnson and EU figures show few signs of willingness to compromise to secure a deal.
Gove said the UK “hope they will change their minds, but we must operate on the assumption that they will not” after the EU made clear the agreement already struck with Theresa May could not be rewritten.
Gove said in a Sunday Times article the government would be launching "one of the biggest peacetime public information campaigns this country has seen," reportedly the largest since the Second World War.
It is also reported that the government is setting up a “war cabinet” of senior ministers and preparing an emergency budget for the week of 7 October, while departments are receiving extra funding for planning.
The Confederation of British Industry (CBI), one of the UK’s leading business lobby groups, warned on Monday that not only the UK government but also many UK companies and the EU are also under-prepared for such a radical break with Europe.
The CBI also warned the EU was lagging behind the UK “by some way” in its preparedness for the huge changes that could occur if existing legal, trade, data, security and other rules suddenly cease to apply after Brexit.
The business group said 24 of 27 major sectors of the UK economy would be disrupted by Britain leaving without a deal, suggesting its impact will not just be felt by UK exporters to Europe alone.
Britain’s budget watchdog warned earlier in July a no-deal Brexit would send Britain into recession, with unemployment, import prices, government borrowing and trade barriers soaring while real incomes, foreign investment, and house prices crash.