Last Tuesday, the pound dropped to its lowest level against the euro in nearly a year after Theresa May, the British Prime Minister, refused to rule out a no-deal Brexit.
In early trade, sterling plunged to as low as €1.1021 against the euro before being able to recover marginally. It is considered as its lowest level since the 11th of September 2017.
On a flight that is bound to South Africa, Theresa May informed the reporters that a no-deal Brexit “wouldn’t be the end of the world.” She rebuffed the warnings made by chancellor Philip Hammond during the previous week against withdrawing from the EU without a deal.
Last week, the government published a series of documents that laid out the risks from a no-deal Brexit for British individuals and businesses. While Dominic Raab, the Brexit secretary, insisted that the notices contradicted the “misinformation” regarding the prospects for “no deal”, Hammond released a letter almost simultaneously emphasising the internal government forecasts of £80bn in additional government borrowing under the scenario by 2033.
The likelihood of a no-deal Brexit, in which the trade terms defaults to the terms of the World Trade Organisation (WTO), has had businesses on both sides of the Channel concerned. The tariffs and non-tariff barriers of the WTO, including rules of origin, are considered by the majority of business groups to be significantly less favourable for cross-border trade as compared to the Single Market of the EU.
Investors see a “no deal” as substantially negative for the pound. Analysts of Bank of America Merrill Lynch predicted a sharp decline to as low as $1.10 against the US dollar if the UK crashes out.
Some industry representatives on both sides of the Channel have suggested that there is a lack of preparation particularly among the smaller companies which may not have the resources required to plan for various outcomes.
Last Tuesday, Heiko Maas, the foreign minister of Germany, echoed those warnings. According to Reuters, he said: “Regrettably, a hard Brexit is not off the table.”
However, despite the warnings over the dangers of “no deal,” so far, the EU has given little sign of any softening in their attitude towards the position of the British government that was agreed at the Chequers country residence.
Last Monday, Emmanuel Macron, the French President, said that a Brexit deal should not come at the cost of European integration.