The pound has fallen below $1.31 for the first time in 31 years amid growing concerns about the financial stability of the UK after the decision to leave the EU.

The Bank of England's twice-yearly stability report had earlier confirmed that the financial stability of the UK had already been affected by Brexit, helping to push the pound lower.

“There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging,” the Bank of England said.

The last time the pound was worth less than $1.31 was in September 1985.

It slipped to $1.3075, down 1.6 per cent after Aviva suspended trading on its property fund, worth £1.8 billion, breaching the $1.3118 low reached on the Monday after the results of the referendum were announced.

The pound was trading down 1.91 per cent $1.3035 as markets closed on Tuesday.

That means the pound is worth 12 per cent less to UK holidaymakers in the US than it was before the referendum.

The pound was down 1.34 per cent against the euro at €1.1749 at the close.

Aviva followed the lead of Standard Life and stopped trading on its property fund to prevent a rush on withdrawals as investors tried to take their money out of the property market.

The Bank of England warned in its twice-yearly assessment that the share prices of real estate investment trusts had tanked. This could have a knock on effect to domestic companies and the wider economy because 75 per cent of small businesses use commercial property as collateral for loans.

Mark Carney, governor of the Bank of England, has said 'ome monetary policy easing will likely be required' (Reuters)

"Any adjustment in commercial real estate markets could be amplified by the behaviour of leveraged investors and investors in open-ended commercial property funds. Any such amplification of market adjustments could affect economic activity by reducing the ability of companies that use commercial real state as collateral to access finance," the Bank of England said.

Stress tests at smaller UK banks, conducted after the financial crisis of 2008, have shown that they can absorb a 30 per cent fall in property prices.

Colin Dewar, head of currency dealing, HL currency service, said that the pound would stay volatile until a clear picture had emerged about what the Bank of England has planned for interest rates.

“Carney reiterated that the Bank has a wide range of tools if further easing is needed, but declined to offer any indication as to when the Bank might act," Dewar said.

"The increasingly poor picture surrounding the UK’s economy makes next week’s Monetary Policy Committee meeting all the more important. Sterling is likely to remain subject to volatility until we have a clear picture of the central banks’ monetary policy path," he added.

The Bank of England has signalled that it was likely to cut interest rates over the summer, with a move to lower the cost of borrowing to come as early as July.

Mark Carney, governor of the Bank of England, did not confirm a date for interest rates to change when he presented the stability report on Tuesday.

As part of the measures planned to fight off a downturn, the Bank has reduced capital buffers by £5.7 billion, effectively allowing banks to lend £150 billion more to households and businesses.

Carney said changes to lending rules were to combat signs that people were pulling out of investments and becoming less keen to take risks.

He said that the two-day fall in sterling was the sharpest in half a century, but that the lower value of the pound was “necessary” for other adjustments in the economy.

“The adjustment in sterling has been significant and was sharp initially.

“That adjustment has moved in the direction that is necessary to facilitate some of the economic adjustments that are needed in the economy,” he said.

6 ways Britain leaving the EU will affect you Show all 6 1 /6 6 ways Britain leaving the EU will affect you 6 ways Britain leaving the EU will affect you More expensive foreign holidays The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more nito100 6 ways Britain leaving the EU will affect you No immediate change in immigration status The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay Getty 6 ways Britain leaving the EU will affect you Higher inflation A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum AFP/Getty Images 6 ways Britain leaving the EU will affect you Interest rates might rise The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output Getty 6 ways Britain leaving the EU will affect you Did somebody say recession? Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018 AFP/Getty Images 6 ways Britain leaving the EU will affect you And we wouldn’t even get our money back All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget Getty Images

But with interest rates already at a record low of 0.5 per cent, it is unclear whether changes to lending rules will be enough to get households and companies to borrow and invest more money.

"Given already record low interest rates, and in light of the risks facing the British economy and neighbouring states, there is little confidence in undertaking new borrowing among companies and households," said Mihir Kapadia, CEO at Sun Global Investments.