Pound drops sharply against dollar as Boris Johnson talks tough on Brexit trade deal

The pound fell more than 1 per cent against the dollar on Monday after Boris Johnson laid out a hard-line approach to Brexit negotiations with Brussels, prompting renewed fears that Britain will leave the EU without a trade deal in 11 months.

Sterling dropped sharply to $1.307 and was down 0.6 per cent against the euro to €1.181.

The prime minister is to lay out his vision on Monday for a “Canada-style” free-trade deal, vowing to ensure that the UK will not be bound by any EU rules on social protections and the environment.

However, the EU’s chief negotiator Michel Barnier said that Brussels would only offer a “highly ambitious” trade deal with zero tariffs on goods if Britain aligned with EU standards.

Mr Barnier said there needed to be a “level playing field” on regulatory standards over the long term.

The impasse again raises the prospect that Britain could crash out with no deal at the end of 2020 when the transition period finishes.

In a speech to business leaders and ambassadors in London, Mr Johnson will say: “There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment or anything similar, any more than the EU should be obliged to accept UK rules.

“The UK will maintain the highest standards in these areas – better, in many respects, than those of the EU – without the compulsion of a treaty and it is vital to stress this now.”

He will add: “We have often been told that we must choose between full access to the EU market, along with accepting its rules and courts on the Norway model, or an ambitious free trade agreement, which opens up markets and avoids the full panoply of EU regulation, on the example of Canada.

“We have made our choice: we want a free trade agreement, similar to Canada’s.”

But EU officials cast doubt over Mr Johnson’s claims. European Commission president Ursula Von der Leyen said: “There is no such thing as the right to free access to the single market. It will always be a mix of rights and obligations.”

Sterling’s fall on Monday erased gains made after the Bank of England voted last week not to cut interest rates.

Connor Campbell, a financial analyst at Spreadex, said fears for the pound among currency traders were “not unfounded”.

“They are based on the details of a speech Boris Johnson is set to deliver to businesspeople and ambassadors, one stating that the UK will refuse close alignment with EU rules and reject the jurisdiction of European courts. In other words, exactly the kind of tactic that is going to give sterling palpitations over the coming months.”

The FTSE 100 was given a boost by sterling’s troubles, rising 0.5 per cent as a weaker pound helped boost the prospects of multinationals that generate profits in other currencies.