Sterling slumps to below $1.26 after Theresa May postpones vote on her Brexit plan

The pound has dropped to its lowest level for almost two years amid the growing risks to the British economy from political paralysis over Brexit and on a no-deal scenario.

Theresa May’s decision to delay the parliamentary vote on her Brexit plan to avoid an embarrassing defeat for the government sent sterling tumbling by more than 1.3% against the dollar and by almost 1% against the euro on the foreign exchanges.

May roundly condemned by MPs after delaying Brexit vote to seek fresh backstop assurances – Politics live Read more

The pound slumped below $1.26 to the lowest level since April 2017 after the prime minister said her Brexit plan would have been rejected by a “significant margin” in a Commons vote pencilled in for Tuesday. Sterling was worth $1.2563 against the dollar late on Monday and €1.1062 against the euro.

Neil Wilson, the chief market analyst at the financial trading company Markets.com, said the pound had experienced one of its worst [days] since the 2016 referendum, adding that “the government [had] left investors completely in the dark about what happens next”.

Analysts said the decision to delay the Brexit vote had pushed up the chances of a damaging no-deal scenario, while lack of clarity over the outcome would further weigh on business and consumer spending plans.

Economists at the Capital Economics consultancy said the chances of May’s deal passing the parliamentary vote in future, whenever it was held, was about 40%, with similar odds for a no-deal Brexit. It gave a 20% chance to a second referendum or a longer period of membership in the EU beyond the March 2019 deadline for article 50.

Ruth Gregory, the senior UK economist at the firm, said the delay was “kicking the can further down the road”, adding: “We would not be surprised if Brexit uncertainty – which we estimate has knocked 0.5 percentage points off growth since the referendum – starts to weigh more heavily on the economy.”

The FTSE 100 closed down by almost 60 points after a day of selling on financial markets as concerns grew over the US trade war with China. The index of leading UK companies usually rises when the pound is weak because many firms make large amounts of money in foreign currency.

The more UK-focused FTSE 250 index fell 2%, to its lowest level since December 2016. Thomas Cook, Stagecoach and Dominos Pizza were among the biggest fallers.

Stephen Martin, the director general of the Institute of Directors, said: “Business leaders may understand the political reasons for the delay, but today’s announcement will be viewed by most as another extension of the frustration and uncertainty.”