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Why has the pound slumped and what has Boris Johnson got to do with it?

Talk of a no-deal Brexit has ramped up since Boris Johnson took over as prime minister.
Jul 30th 2019, 11:01 AM 41,909 60

THE POUND HIT a 28-month low yesterday and continued to fall this morning against the euro and dollar.

Fears among businesses of the negative effects a no-deal Brexit will have on the the domestic economy being blamed for the slump.

New UK prime minister Boris Johnson’s government have ramped up their talk of a no-deal Brexit, with the PM taking a stronger position on this than his predecessor Theresa May.

This has clearly spooked traders, who seem to have been hoping for a last-minute deal being reached between the UK and the EU, which would soften any blow the former may experience on leaving the union. 

But as the October deadline draws closer and the UK rhetoric around leaving without a deal ramps up, analysts fear the pound may to continue to fall. 

Where the pound is at

Sterling fell below $1.23 against the US dollar and to below €1.10 against the euro on international currency markets yesterday, hitting a low not seen in over two years. 

That slump has continued this morning, with £1 sterling equal to €1.09 in euro or $1.23 dollars, as trading markets opened in Asia. 

“Tin hats time: All the stops are out and the pound is now in free fall,” said Neil Wilson, market analyst for Markets.com.

There is now a very real chance that the pound will fall to $1.20 and even below. 

This leaves the pound just 1% away from hitting a 34-year low. The slump comes at a particularly bad time for the UK as it is peak holiday season.

UK holidaymakers in Europe and further abroad will be hit with less savings as they exchange their pounds for foreign currencies. 

 Why the pound is plummeting 

The rhetoric around the UK leaving the EU without any deal has ramped up significantly since Johnson took over as UK leader and staffed his cabinet with hardline Brexiteers.

This has spooked a lot of businesses, with lobby groups coming out to warn against the impact a no-deal would have on the country’s economy.

“The British pound started weakening sharply today, with the market awaking to the reality of a new UK government, its rather combative stance on the current EU-UK Brexit deal and its open remarks on the rising probability of a no deal Brexit,” said ING financial services strategist Petr Krpata. 

Krpata said sterling’s woes were a “meltdown” and said the decline was unlikely to be over, as “politics should remain the key negative for sterling in the months to come”. 

Krypta said that it was ING’s assumption that an election would soon take place in the UK and that the pound would sink to as low as €1.05 and $1.18. 

Business pressure

Responding to the slump in the pound, a number of UK business lobby groups came forward warning against a no-deal Brexit, saying that the country wasn’t properly prepared for the shock.

The British Chambers of Commerce (BCC) said that preparations for a no-deal needed to be ramped up. 

“The 31 October deadline is fast approaching and businesses are being told to prepare for no deal, but there are still significant areas where there is simply little basis on which to plan,” the group said. 

UK cabinet ministers are meeting this morning where its guaranteed the slump in the pound – and what to do about it – will be discussed. 

Meanwhile, eurozone business confidence fell to an almost six-year low in July, according to data published by the European commission. There was a negative reading for business confidence in the eurozone, the first since October 2013. 

With reporting from © AFP 2019.

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Cormac Fitzgerald

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