The crash in the pound against the euro since the Brexit vote is likely to lead to an increase in the amount of savings ordinary depositors at UK banks will have guaranteed by the state.

The Bank of England's Prudential Regulation Authority (PRA) has said that it will consult on restoring the deposit protection limit from £75,000 back to £85,000 on 30 January 2017 due to a “structural shift in the exchange rate”.

The deposit protection limit is the amount that an individual saver can expect to receive back in full if the bank in which she or he is depositing goes bust.

Any savings above the deposit limit risk being lost.

A European Union directive required the UK to reduce the limit from £85,000 to £75,000 in July 2015 to ensure that protection limits across the EU were harmonised at around €100,000.

At that point sterling was worth €1.41.

But sterling has since depreciated around 17 per cent and is now worth just $1.16.

Much of this decline has come since the Brexit vote.

Sterling's plunge against the euro

Reuters Eikon

The Directive enables an adjustment every five years in the protection limit permitted by regulators with non-euro currencies but also in the wake of “unforeseen events”.

“Taking into consideration the developments in financial markets following the UK’s referendum vote on 23 June 2016 to leave the European Union including with respect to the GBP/EUR exchange rate, the PRA considers that a structural shift in the exchange rate has occurred,” the PRA said.

This confirms that the Bank does not regard sterling's post-Brexit vote slump as a temporary phenomonon that is likely to be reversed in due course.

The chair of the Treasury Select Commitee, Andrew Tyrie, said the new change to the protection limit was "a recipe for yet more uncertainty" and said it was "absurd" that the Bank of England needed to shift its policy according to EU rules.

“Each change will have carried a cost. It’s extremely valuable for the level of deposit protection to be well known for long periods. This allows savers and small businesses time to adjust. Stability is what is needed. That is what can entrench public confidence in depositor protection, the most valuable commodity of all," he said.

“These recent changes have not been the fault of the PRA...The absurd situation, in which the UK is left vulnerable, at the discretion of the European Commission, to frequent changes in our deposit scheme, must be brought to an end. Brexit should give the UK the opportunity to set its own level of protection. We should take it.”

During the global financial crisis when UK banks seemed to be at risk of going bust the former Chancellor Alistair Darling increased the level of depositor protection in order to reduce the risk of a catastrophic series of bank runs.

Before 2007 only 100 per cent of £2,000 was guaranteed and just 90 per cent of any deposit up to £33,000.

Mr Darling increased this to £35,000 in the wake of the run on Northern Rock – the first major UK bank run in more than a century – to cover 96 per cent of all depositors.

The limit later rose to £85,000 in 2010.

What does the falling pound mean for you?

In return for the guarantee of their depositors’ funds, authorised UK banks must pay a levy to the state-run Financial Services Compensation Scheme.

In 2016 the FSCS raised £337m in total, including contributions from other covered financial services firms.