Theresa May and the pound: Brexit jitters
Theresa May and the pound: Brexit jitters © FT Montage

The pound dropped to its lowest level since October amid market fears that Theresa May is leading Britain to an uncertain future outside the single market, forcing the prime minister to deny the UK was heading for a “hard Brexit”.

Mrs May instead accused the media of inflaming fears Britain will crash out of the EU without a deal to stay in Europe’s common market and causing Monday’s sharp fall in sterling against both the dollar and the euro.

The prime minister insisted she would seek an “ambitious” trade deal with the EU, after markets were unsettled by her comments Sunday that the UK would not try to keep “bits of membership” of the EU — widely interpreted by investors as a reference to Britain’s inclusion in the single market.

“I’m tempted to say that the people who are getting it wrong are those who print things saying I am talking about a hard Brexit [and that] it’s absolutely inevitable there’s a hard Brexit,” Mrs May said after the pound fell 1.3 per cent fall against the dollar to $1.2122 in early trading.

Her remarks failed to reassure investors, however, and the pound remained at $1.22 at the end of the London trading day.

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1. June 24: Sterling falls more than 12 per cent to a 30-year low after UK votes to leave.
2. August 4: Bank of England launches big QE programme.

3. October 6: “Flash crash” — pound drops to $1.14 in a few minutes.

4. November 3: High Court’s Article 50 ruling against government boosts the pound
.
5. January 9: Pound stumbles as Theresa May rules out the UK keeping “bits of” EU membership.

———-

The prime minister was not helped by Angela Merkel, German chancellor, who on Monday reiterated her unwillingness to allow Britain favourable access to the single market if Mrs May insisted on ending the free movement of EU citizens into the UK.

Ms Merkel said Britain would not be allowed any “cherry-picking” in its access to the single market.

Mrs May’s comments on Sunday were not the first time her hardline stance on Brexit had spooked currency traders; her party conference speech last October, where she laid out her determination to take control of Britain’s borders and laws, was viewed as a signal Britain would leave the single market and sparked the biggest sterling drop since the June referendum.

But analysts said markets were now becoming more concerned about Mrs May’s lack of a clear plan. “Until the government finally presents a concrete and convincing strategy, market participants will increasingly fear a disaster,” said Esther Reichelt at Commerzbank.

Lee Hardman, currency analyst at MUFG, said: “The desired details of the bespoke free-trade agreement remain unclear. The uncertainty and fear of harder Brexit are expected to remain heavy weights on the pound.”

Andrew Tyrie, Tory chairman of the Commons Treasury committee, called for clarity in a speech on Monday night, urging Mrs May to say whether she wanted the UK to stay in the single market and customs union and would seek a transition deal to ease British exit from the bloc.

Mrs May’s spokeswoman suggested Britain would indeed leave the single market, saying that while no decisions had been taken there were “many countries” which had free-trade agreements with the EU, securing preferential access to the single market.

Ministers are also looking to minimise economic disruption by keeping Britain partially inside the customs union, removing tariffs on trade and reducing the need for border controls.

Ms Merkel, speaking to civil servants in Cologne, made clear her priority was holding together the remaining 27 EU states, warning that anything other than Britain’s full adherence to the EU’s single market rules would have “fatal consequences” for the rest of the union.

She added that maintaining good relations with London — an approach that she supports — did not mean giving up ground when the Brexit negotiations began.

In addition to its fall against the dollar, the pound was 1.4 per cent lower against the euro as traders eyed the prospects of a recovery for the EU’s common currency, following a series of opinion polls favouring ruling parties in the upcoming European elections.

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