The pound has fallen to its lowest level against the dollar and the euro this year, as mounting fears that Britain is at risk of crashing out of the EU without a deal prompted an across-the-board sell-off in the world’s financial markets.

Sterling was down heavily against all major currencies as investors sought to insure themselves against the growing possibility that talks between London and Brussels break down over the coming months.

Analysts said sterling’s slide – which makes imported goods and foreign travel more expensive but UK exports cheaper – would push up inflation and lead to a renewed squeeze on living standards at a time when support for the government’s handling of Brexit has fallen sharply.

Holidaymakers have already seen an impact from the weaker pound. The walk-up rate at Forexchange bureaux de change in Cardiff airport on Wednesday had dropped to just €0.90 to £1 – £200 bought just €177.

Speculation against the pound has intensified in the past week as markets have digested warnings from Mark Carney, the governor of the Bank of England, and Liam Fox, the international trade secretary, about the possibility of a chaotic exit from the EU for Britain next March.



Although the government has insisted that it still expects negotiations with the EU over the next few months to prove successful, currency traders have been prepared for a deal not to emerge and are now hedging against the possibility of the hardest possible Brexit.

With less than eight months to go before the UK’s planned departure date, financial markets have now started to take seriously the chances of chaos at the borders and damage to supply chains.

Mark Carney, governor of the Bank of England, has warned that the risk of a no-deal Brexit was ‘uncomfortably high’. Photograph: Reuters

Carney said in the wake of last week’s decision to raise interest rates by a quarter-point to 0.75% that the risks of a disorderly Brexit were “uncomfortably high”, while Fox said there was a 60% chance that there would be no deal in place with the EU by the time of Britain’s departure.



“What we are seeing is broad sterling weakness, a very aggressive weakening trend,” said Peter Kinsella, a strategist at Commonwealth Bank of Australia.

The pound lost more than half a cent against the dollar to trade below the $1.29 level for the first time since late August 2017. Sterling dropped half a cent against the euro to its lowest level for nine months and also posted losses against the Japanese yen and the Swiss franc.



Sterling was trading above $1.43 against the US currency in April, but has been in steady decline since as Theresa May has struggled to find a Brexit plan acceptable both to the the EU and her own party.

Jordan Rochester of Japanese bank Nomura predicted that the pound would keep falling ahead of the next EU summit in October, when the prime minister will try to persuade leaders to back the proposals for a new UK-EU customs arrangement agreed by the cabinet last month.



“We remain bearish on the pound in the short term until the Brexit mess is out of the way and look for the currency to enter a $1.27-1.28 range before the leaders summit,” Rochester said.

May will discuss Brexit with the EU’s 27 other leaders at an informal summit in Austria next month and meet them again in October to try to seal deals on the terms of Britain’s withdrawal.

Analysts said the decision last week by the Bank of England to push official interest rates above 0.5% for the first time in almost a decade has failed to support the pound.

Investors believe the Bank’s monetary policy committee (MPC) will be in no hurry to move again following Carney’s hint that it would take another three years for official borrowing costs to double from 0.75% to 1.5%. Attention in the City will now focus on Friday’s growth figures for the second quarter of 2018, expected to show the UK economy expanded by 0.4%.

One former MPC member, Andrew Sentance, wrote on Twitter that the next stop for the pound could be $1.25 and that ultimately, it might fall below $1.10.



But analysts at the US investment bank, Morgan Stanley, said they expected the pound’s weakness to be temporary. The bank recommended investors take out a sterling hedge given the prospect of further ups and downs in the negotiations in the coming months, but added that Britain was still likely to secure a deal with the EU.

“We see this as a short-term trade as the conclusion of any trade negotiations by early 2019 should cause the pound to strengthen” the analysts said.

They predicted that by the end of next year, the pound would be trading at $1.50, around the level at which it stood before the UK voted to leave the EU in June 2016.