The sterling has hit a nine-month low against the euro and the dollar on Wednesday, amidst concerns of a no-deal Brexit.
The Bank of England governor Mark Carney said on Friday that a no-deal Brexit is “uncomfortably high,” while trade secretary Liam Fox said the possibility of not reaching an agreement is “much more than 60-40.”
Markets will be watching the October Council of Ministers to determine whether to continue selling off the pound.
The Bank of England has raised interest rates to 0,75%, the highest in Europe, to tame inflation. Prices for food and energy, in particular, have been surging as the pound loses ground. That is affecting purchasing power, in a market that so far appears to be close to full employment.
Some analysts believe that the Bank of England is trying to create breathing space to react in a no-deal scenario.
On a positive note, a cheaper pound increases profits for companies listed in London and operating abroad, boost exports and will reduce the UK’s trade deficit.
In the event of a “no deal” Brexit, the IMF projects a 4% loss in GDP by 2030. The EU 27 could also see their GDP decelerate by 1,5%. Hardline Leave campaigners believe the effect of “no deal” is being overstated.