The pound continues to collapse after Boris Johnson's government signals that Britain is heading for a no-deal Brexit.

Sterling fell to a two-and-a-half year low on Tuesday, after senior members of Johnson's government insisted a no-deal exit was the most likely outcome in October.

A former Goldman Sachs economist and currency guru says comments had created a "free lunch" for traders hoping to make money on the pound.

"A lot of them are saying thank goodness for Boris, he's giving us a chance to make some money."

Boris Johnson's push towards a no-deal Brexit is a "free lunch" for hedge funds and currency traders trading off the collapse of the pound, the former chairman of Goldman Sachs' Asset Management Sir Jim O'Neill has said.

The UK government's official spending watchdog has previously warned that a no-deal Brexit would shrink the UK economy by 2% in 2020 and trigger a recession.

However, Baron O'Neill, who advised David Cameron's government, said on Tuesday that his former colleagues in the industry saw the push to a no-deal Brexit as a "chance to make some money."

O'Neill told the BBC Radio 4 World at One programme that UK government figures "deliberately promoting the no-deal Brexit risk" were allowing traders to benefit.

"I'm pretty sure that a lot of big foreign exchange and hedge fund type people are... probably looking at what's being said coming out the UK as almost close to a free lunch," O'Neill said.

"The world I was in a lot of them are saying thank goodness for Boris, he's giving us a chance to make some money."

The comments come as Sterling falls to a two-and-a-half-year low, after senior members of Boris Johnson's cabinet signaled that Britain is heading for a no-deal Brexit in October.

Read more: There's a 'very real chance' the slump in the pound is just getting started

Johnson's de facto deputy Michael Gove suggested on Sunday that the UK is operating "on the assumption" that Britain is heading for a no-deal exit, while the Foreign Secretary Dominic Raab said that the "balance has shifted" towards leaving without an agreement.

Johnson's spokeswomen said on Monday that he would not even meet with EU leaders to discuss a deal until they ditched their longstanding negotiating red lines.

She added that the government "must assume" that a no-deal Brexit was on the cards.

"The European Union has said up to now it's not willing to renegotiate that so we must assume there will be a no-deal Brexit on October" she said.