Brexit: Pound falls sharply as Boris Johnson’s hopes of EU deal lie in tatters

The pound fell by almost a cent against the euro after Boris Johnson told Angela Merkel on Tuesday that a Brexit deal is now “essentially impossible”.

Mr Johnson’s 8am call with Germany’s chancellor ended with no progress made on the crucial issue of Northern Ireland’s status after Brexit, scheduled for the end of this month.

Sterling dropped 0.75 per cent against the single currency to €1.112 and was 0.6 per cent lower against the dollar as markets contemplated the prospect of a crash-out Brexit.

A Downing Street source claimed that Ms Merkel made clear in the telephone conversation with Mr Johnson that a deal is “overwhelmingly unlikely” unless Northern Ireland is kept in the EU customs territory.

The German Chancellery confirmed the two leaders spoke on Tuesday morning but declined to confirm the substance of discussions, stating: “As usual we do not give an account of these confidential conversations.”

A no-deal departure, widely predicted to inflict severe economic damage on the UK, looks increasingly likely after the prime minister refused to budge on his latest proposals to withdraw Northern Ireland from the EU customs union.

Under the British plan, Northern Ireland would stay aligned with EU single market regulations for goods, but remain in the UK customs zone.

The result would be customs checks on products moving between the Republic of Ireland and Northern Ireland, and regulatory checks on products moving between Great Britain and Northern Ireland. 

The plan has been decisively rejected in Europe and Northern Ireland as unworkable and potentially a threat to more than two decades of peace in Northern Ireland.

This morning, Mr Johnson’s Northern Ireland Secretary, Julian Smith, attacked Number 10 for a threat made by a source within the prime minister’s office that Britain may stop cooperating on security issues if the EU doesn’t give way.

“I am clear that any threat on withdrawing security cooperation with Ireland is unacceptable,” Mr Smith wrote in a Twitter post after Tuesday’s cabinet meeting. 

“This is not in the interest of Northern Ireland or the Union.”

 Reacting to Number 10’s account of discussions between Ms Merkel and Mr Johnson, European Council President Donald Tusk warned that “what’s at stake is not winning some stupid blame game”.

In a tweet directed at the prime minister, Mr Tusk said: “At stake is the future of Europe and the UK as well as the security and interests of our people. You don’t want a deal, you don’t want an extension, you don’t want to revoke, quo vadis?”

It came as new official data revealed UK productivity fell at its fastest rate for five years. Output per hour –  a key measure of the health of the UK economy – slumped 0.5 per cent in the latest quarter compared to a year earlier. 

Consumer confidence, which has been one of few bright spots for the UK economy, has also fallen ahead of the crucial Christmas trading period, according to a survey published on Tuesday by PwC.