Central banks and sovereign wealth funds are likely to sell up to £100bn of UK bonds and precipitate a balance of payments crisis if Brexit talks break down in acrimony, Bank of America has warned clients.

The US bank said selling on this scale would send sterling cascading down to lows not seen since the mid-1980s, with a risk of cliff-edge falls if the exchange rate breaks below $1.10 against the dollar.

Kamal Sharma, the bank’s currency strategist, said Britain is dependent on constant inflows of capital to plug the current account deficit, still 3.9pc of GDP despite the improvement over the last two years.

Inflows from foreign direct investment have stalled. Foreign exchange managers - the big beasts of global finance - are the next line of defence. Their behaviour is taking on a critical significance. Mr Sharma says that even a moderate shift in portfolio strategy would be enough to trigger a “protracted current account crisis” in Britain.

There was a short burst of such selling after the referendum in June 2016. Bank of America’s proprietary flow data show that central banks quickly carried out the biggest liquidation of sterling assets since their data series began. Buying quickly recovered.

Central banks and sovereign funds currently hold $500bn of UK debt. The sterling weighting of their reserves is 4.7pc, well above 3.6pc average over the last 20 years. A no-deal scenario could see this allocation revert to mean abruptly.