Sterling endured its most brutal day since the global financial crisis on 22 February, as two major credit ratings agencies warned again of the economic damage a Brexit would inflict and senior figures from the world of industry made a plea for the Britain to remain part of the European Union.
The pound fell 1.8 per cent against the dollar, the currency’s biggest single-day slippage in six years, with financial traders reporting the decision of Boris Johnson to campaign for Out as the primary driver of the negative market sentiment.
“Boris pounds sterling,” said Joshua Mahony of the spread-betting firm IG. “Traders and investors have been waiting for an opportunity to give sterling a smack and the Mayor of London has handed them a big old bat with which to do it,” said Jeremy Cook of currency exchange firm World First.
Citi, the world’s largest bank, told its clients that the risk of Brexit had jumped from 30-40 per cent, up from 20-30 per cent before the weekend.
Fitch, which rates sovereign bonds for investors, repeated its long-standing view that Brexit would result in a short-term economic costs and “significant” long-term risk for the UK. Another of the three main credit agencies, Moody’s, said it would consider a negative outlook to the UK’s credit rating if Britons voted Out.
A letter due to be published today from scores of bosses of FTSE 100 companies, which employ hundreds of thousands of Britons, reportedly warned that the UK leaving the 28 member bloc would “put the economy at risk”.
“Businesses like ours need unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs,” it said. “We believe that leaving the EU would deter investment and threaten jobs. It would put the economy at risk”.
The last time sterling got such a single-day pounding in the foreign exchange markets was in October 2009 when the UK was still in the grip of the turmoil that followed the global financial crisis. During the Scottish referendum in 2014 the biggest single day fall was only 1.16 per cent.
Traders said the fall in the pound, which touched a seven-year low against the dollar of $1.4056, reflected the prospect of large sums of investment capital being withdrawn from the UK by international firms and shareholders in the wake of a Brexit vote.
Some analysts said Brexit would also make it less likely that the Bank of England would raise interest rates, which would also push down on the value of the currency. But others said that, on the contrary, the Bank might need to put up interest rates rapidly to support the value of the currency. “The currency is the main barometer of uncertainty,” said analysts at the Swiss bank UBS.
What has the EU ever done for us?
What has the EU ever done for us?
1/7 1. It gives you freedom to live, work and retire anywhere in Europe
As a member of the EU, UK citizens benefit from freedom of movement across the continent. Considered one of the so-called four pillars of the European Union, this freedom allows all EU citizens to live, work and travel in other member states.
2/7 2. It sustains millions of jobs
A report by the Centre for Economics and Business Research, released in October 2015, suggested 3.1 million British jobs were linked to the UK’s exports to the EU.
3/7 3. Your holiday is much easier - and safer
Freedom to travel is one of the most exercised benefits of EU membership, with Britons having made 31 million visits to the EU in 2014 alone. But a lot of the benefits of being an EU citizen are either taken for granted or go unnoticed.
4/7 4. It means you're less likely to get ripped off
Consumer protection is a key benefit of the EU’s single market, and ensures members of the British public receive equal consumer rights when shopping anywhere in Europe.
5/7 5. It offers greater protection from terrorists, paedophiles, people traffickers and cyber-crime
Another example of a lesser-known advantage of EU membership is the benefit of cross-country coordination and cooperation in the fight against crime.
6/7 6. Our businesses depend on it
According to 71% of all members of the Confederation of British Influence (CBI), and 67 per cent of small and medium-sized enterprises (SMEs), the EU has had an overall positive impact on their business.
7/7 7. We have greater influence
Robin Niblett, Director of think-tank Chatham House, stated in a report published last year: “For a mid-sized country like the UK, which will never again be economically dominant either globally or regionally, and whose diplomatic and military resources are declining in relative terms, being a major player in a strong regional institution can offer a critical lever for international influence.
The cost of hedging against falls in the value of the UK dollar exchange rate rose to the highest level in four years, reflecting a sudden move by many firms to offset their exposure. Against the euro, sterling fell around 0.5 per cent to €1.2839, dipping as much as 0.9 per cent at one point.
However, despite the currency turmoil, the FTSE 100 index of blue chip shares rose by 1.47 per cent to its strongest level in three weeks yesterday, with traders pointing to the possibility of a weaker currency giving firms’ exports a fillip.