The pound has fallen to its lowest level in more than two years after pledges by both Boris Johnson and Jeremy Hunt to ditch a key part of the UK-EU withdrawal agreement intensified City fears over a no-deal Brexit.

Sterling fell by a cent against the US dollar after a Sun and Talkradio debate in which both the contenders to replace Theresa May in Downing Street said they would not accept a Northern Ireland backstop in its current form.

With Brussels insisting that an agreement to maintain a seamless border between Northern Ireland and the the Irish Republic is non-negotiable, investors at one point drove the pound below $1.24 – a level last seen in the spring of 2017. It later edged back above $1.24. The pound also hit a six-month low of €1.1063 against the euro.

The pound’s losses against the US currency intensified after a Sky News report that Johnson was considering sending MPs home during the days leading up to the Brexit deadline day of 31 October.

A weaker pound makes exports cheaper but pushes up inflation by making imports dearer. John McDonnell, the shadow chancellor, said: “The instability and uncertainty caused by the Conservative party leadership contest has real-world consequences.”