Pound plunges below $1.20 as snap election speculation swirls – business live

Shares in UK-focused companies are falling this morning, hit by the threat of a disorderly Brexit.

Housebuilders are among the top fallers, with Barratt Development and Berkeley Homes down 1.5%. Online estate agent Rightmove has lost 1.2%, on fears that the property sector would freeze up after No Deal.

Banks are also under pressure, with Royal Bank of Scotland and Lloyds Banking Group down over 1%. A recession could drive up their bad loans, and hurt demand for credit.

Supermarkets could be another Brexit casualty, if disruption at the ports prevents food reaching the shelves. Wm Morrison and Sainsbury are both down 1.2%.

There’s been a lot of political drama already today, which is helping to push sterling deeper into the mud.

Already:

Conservative MP Justine Greening, who opposes a no-deal Brexit, has said she won’t run in the next election, and compared Brexit to a contagious, highly virulent, virus.

Former chancellor Philip Hammond has said Boris Johnson is maneuvering for an election, and claimed the PM can’t be trusted not to move the date until after the Brexit deadline.

The Daily Telegraph have created quite a stir. It’s reporting that top advisor Dominic Cummings has described negotiations with the EU as as “sham”, and that the attorney general has rubbished the idea that the Irish Backstop could be ditched.

That undermines Johnson’s claim that MPs would undermine his negotiations if they took a no-deal Brexit off the table.

Theresa May’s former chief of staff, Gavin Barwell, has heard similar claims…..

Our Politics Live blog has all the details:

Newsflash: The pound just fell to $1.1960 against the US dollar, down a whole cent today.

Again, that’s the weakest point since October 2016 when sterling suffered a brief, punishing ‘flash crash’ in the aftermath of the June 2016 referendum.

If you strip that flash crash out of the data, the pound hasn’t been quite so weak since 1985.

Nervous investors are piling into UK government bonds in a scramble for safety.

This has forced prices to record highs, driving the interest rates (or yield) on 10-year gilts down to a record low of 0.384%.

That might sound like a vote of confidence in the UK. But actually, it’s due to worries about a general election, and concern about a possible recession.

Other government bond yields are also hitting record lows, as investors worry about the health of the global economy (which would be hurt by a disorderly Brexit).

Today’s rout means the pound has lost five cents against the US dollar since Boris Johnson became Conservative Party leader in mid-July.

How bad could it get for the pound? Much worse, according to some City analysts.

Neil Wilson of Markets.com predicts sterling could fall to $1.15, or even $1.10, in the coming weeks.

He writes:

Ignoring the flash crash [in 2016], we are very much in uncharted waters here. We could feasibly see 1.15 or even 1.10 in the coming weeks if traders decide to move against the pound.

Elections are never easy to call – the risk of Corbyn to UK assets is probably greater than a no-deal Brexit, after all. The outlook for sterling may well worsen if there is an election and will certainly deteriorate if it’s a no-deal.

The pound is continuing to slide, and just hit $1.1975 against the US dollar.

That takes it below the January 2017 low. Indeed, if you exclude a currency “flash crash” in October 2016, it’s the lowest since 1985!

This chart shows just how weak sterling has become in historical terms.

The pound is likely to fall further if a snap general election is called, predicts Elsa Lignos of Royal Bank of Canada.

She told clients:

Parliament reconvenes today. While the opposition MPs’ motion is expected to be tabled today, it will only move to a key vote tomorrow if MPs vote today to take control of Commons business – so a two-step process: vote to take control today, vote on the bill tomorrow (though if the first passes, the second is expected to also).

Tory MPs have been told they will be de-selected which some speculate could dissuade younger MPs but with the govt’s majority so tight, the opposition’s hurdle is achievable.

The Parliamentary session may start early, but the key vote is expected late tonight (potentially 9.30-10pm according to ITC). If the vote does pass, the vote on a snap election is expected on Thursday. If the vote fails, we expect the probability of no-deal exit to surge (and GBP to fall).

The pound is also losing ground against the euro, fast!

Sterling has dropped to €1.096, down nearly half a euro cent this morning. That’s only a two-week low, though (the pound hit €1.072 in mid-August).

If the pound falls much further against the US dollar today, it will hit levels last seen under Margaret Thatcher in 1985!

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The pound has slumped to its lowest level since January 2017 this morning, as fears of a no-deal Brexit grip the financial markets.

Sterling was driven through the $1.20 point in early trading in London. It has shed half a cent to hit $1.1995, its weakest point in 32 months.

Traders are shunning the currency, as speculation swirls that Britain could be heading for a general election.

The City is hunkering down ahead of a seismic day in Westminster. A group of rebel Conservative MPs are expected to try to block a no-deal Brexit – despite being threatened with deselection, meaning they’d lose their jobs at the next election.

Last night, prime minister Boris Johnson pledged that he didn’t want a general election, but sources said last night that a poll could take place on 14 October — if MPs took control of the House of Commons.

Triggering an election would require a vote of no confidence in the government. So, with Brexit due in under 59 days, investors across the globe are worrying that the UK could crash out of the EU without the cushion of a withdrawal agreement.

Ipek Ozkardeskaya, senior market analyst at London Capital Group, explains:

At this point, with a slim majority of just one in hand, Johnson cannot afford to lose support from the Conservative Party members. As a result, he is now pressuring Tories to stand next to him at this week’s vote in the House of Commons to deliver Brexit by October 31 with ‘no ifs or buts’. If not, he is threatening to expulse rebels and to throw a snap election by October 14.

As a result, on the final run-up to the critical October 31st deadline, the pound is shaken by more political uncertainties. Cable hit a fresh two-week low on rising tensions among British lawmakers. Traders are now pricing in the possibility of a no-confidence vote this week, a scenario which could get the UK’s political scene uglier than it already is. A snap election would mean that either Johnson receives a mandate to quit the EU with no deal on October 31st, or the Brexit deadline is postponed – again. Both scenarios justify a weaker pound.

A new business survey is expected to show that the UK construction sector contracted last month, adding to worries about the economy.

Yesterday we learned that manufacturing activity declined in August, at the fastest pace in seven years, as Brexit uncertainty and the US-China trade war hurt factories.

The agenda

• 9.30am BST: UK construction PMI for August (expected to rise to 45.9 from 44.3, still showing contraction)
• 3pm BST: US manufacturing PMI for August