Pound recovers from $1.20 tumble as government loses majority - as it happened
Sterling has hit its lowest point since October 2016 flash crash, amid fears of a no-deal Brexit next month
- Latest: Pound recovers as government loses majority
- Newsflash: UK construction hit by Brexit crisis
- Introduction: Pound slumps amid political crisis
- Lowest since 2016 Flash Crash
- Euro hits 28-month low
- Politics Live: Commons showdown looms in battle over no-deal Brexit - live
5.05pm BST
Time for a recap.
The pound getting knocked around by Brexit chaos but worth noting it hit its high of the day after Boris Johnson lost his working majority #brexit https://t.co/Is3Up5I77Z
someone's having fun pic.twitter.com/t3V15iferX
Related: Brexit: Tory MP defects to Lib Dems as Boris Johnson makes statement on G7 summit - live news
4.37pm BST
After a turbulent day, the FTSE 100 share index has closed just 13 points lower at 7268, a drop of 0.2%.
UK-focused companies, who are vulnerable to a no-deal Brexit, had a poor day.
4.18pm BST
As a rule, political instability isn't great for currencies. But today, the news that Boris Johnson has parted company with his majority has pushed the pound higher....
The pound climbed to its its highs of the day after Boris Johnson lost his parliamentary majority https://t.co/w3Jfx3ktnM pic.twitter.com/fGabgstwiv
3.45pm BST
The pound has now recouped all today's losses, just as Boris Johnson loses his majority in parliament!
Sterling is back at $1.207, where it ended last night.... just as Philip Lee MP dramatically leaves his seats among the government benches and joins the opposition Liberal Democrats.
Tory MP Phillip Lee defects to the Lib Dem's ending Boris Johnson's majority.
Statement: pic.twitter.com/gYGNThGi1a
3.31pm BST
Heads-up: Boris Johnson is about to update MPs about the recent G7 summit. Our Politics Live blog has all the action.
Related: Brexit: Corbyn says MPs can block no-deal and also hold early election - live news
3.14pm BST
Ouch! A second survey of America's factories is even more grim.
The Institute of Supply Management have just reported that US manufacturing actually shrank last month - joining the wider global slowdown.
Now US manufacturing PMI slips - the last domino to fall U.S ISM MANUFACTURING NEW ORDERS INDEX (AUG) ACTUAL: 47.2 VS 50.8 PREVIOUS; EST 50.5
U.S ISM MANUFACTURING PMI (AUG) ACTUAL: 49.1 VS 51.2 PREVIOUS; EST 51.2
3.09pm BST
Elsa Lignos of Royal Bank of Canada has drawn up this flowchart, outlining how the UK's political crisis could play out.
Assuming a 50/50 coin toss for who wins the election (so much will depend on alliances so it's the most neutral assumption for now), a Labour-led government would open the way to the most GBP-positive scenario for Brexit (a second referendum - which we expect would be precondition from LibDems to offer their support).
While we hear a lot of worry on how GBP-negative a Labour-led government would be because of Corbyn's policies, Labour's chance of winning an outright majority seems vanishingly slim.
Also most clients we speak to prioritise outcome on Brexit over Corbyn's impact on domestic policy if governing in a coalition.
3.03pm BST
In other news, Donald Trump's trade war appears to have driven growth across America's factories down to a 10-year low.
Data firm Markit reports that US manufacturing barely expanded last month -- that's a bad sign, but actually better than the UK or the eurozone which both suffered a contraction.
US Manufacturing PMI falls to a decade low of 50.3 in August (July - 50.4) as new export orders decline at an accelerated rate at US goods-producing businesses. Rates of output and new order growth also remained subdued. Read more here: https://t.co/41KAkzhcbT pic.twitter.com/37bMitZYli
3.00pm BST
The slump in the pound today is helping to prop up London's stock market.
Shares in multinationals such as building supply firm Ferguson, drinks giant Diageo and chemicals group Johnson Matthey have all risen, as a weaker sterling makes their overseas exports more valuable.
....And then, think what happens to China when I win. Deal would get MUCH TOUGHER! In the meantime, China's Supply Chain will crumble and businesses, jobs and money will be gone!
2.43pm BST
Deutsche Bank has just told its clients that a general election before 31 October would be the "least worst" of all the scenarios on the table.
They argue it would cut the risk of a no-deal Brexit.
2.08pm BST
Karen Ward, chief market strategist at JP Morgan, thinks investors should keep away from the pound or risk getting badly burned fingers.
She believes the pound could rise back to $1.40 if Britain was to leave the EU under a withdrawal agreement, but could plunge to $1.10 in a no deal scenario.
"MPs return to parliament today on the back of the latest slide in the British pound, which reflects an increase in market jitters around the potential for a no-deal exit.
A general election appears increasingly likely, although the events of the last few years have taught us that there is frequently an unforeseen twist in the Brexit tale. If the UK population are indeed sent back to the polls, this will only add to political uncertainty given the complexities in forecasting the result of an election that will clearly be dominated by Brexit.
1.56pm BST
Back in Westminster, government efforts to placate the group of Conservative MPs opposed to a No-Deal seem to have floundered.
The group, including former chancellor Philip Hammond, have met Boris Johnson, but say the PM only gave an 'unconvincing' explanation of how a new deal could be agreed in time.
BREAKING: Tory rebel alliance has emerged from its showdown with PM saying he gave "an unconvincing explanation" of how a deal with the EU could pass before Oct 31st and didn't give "a reasonable answer" to why the govt still hasn't come up with an alternative to the backstop. pic.twitter.com/cZRbhvvVyL
1.18pm BST
Investors should also keep a close eye on Edinburgh today, where judges are hearing a court case on whether parliament should be suspended for five weeks.
The case was brought by a group of parliamentarians, who argue that Boris Johnson has acted illegally and unconstitutionally by proroguing Parliament ahead of the UK leaving the EU on 31 October.
#stopBoris case hears Johnson wrote a note to Nikki Da Costa on 16 August saying: "Whole September session [at Westminster] is a rigmarole introduced to show the public that MPs are earning their crust. I don't see anything especially shocking about this prorogation" 1/2
In other words, the PM had decided in secret to suspend parliament a full 12 days before privy council asked the Queen to prorogue.
1.01pm BST
The pound is changing hands at $1.201 to the US dollar as City traders grab a lunchtime sandwich.
This minor recovery from this morning's slump comes as opposition MPs look for a way to block no-deal on 31 October, before giving their approval for an election.
1. Frantic morning in Parliament - rebels seem v confident they have numbers to take control of the agenda later, votes might not be til 10pm
3. In contrast tory rebels meeting with PM seems to have gone less than swimmingly .. one there said it was 'crap' , another said Johnson made it clear he would withdraw he whip - sounds like it was less than cordial not surprisingly given what's at stake
5. Last thought for now on v fast moving day - Labour looking hard for a mechanism where they can get to a general election with a guaranteed date having outlawed no deal
12.25pm BST
In theory, the pound is a global reserve currency, alongside the euro, the yen, and of course the US dollar.
In practice, it is behaving more like an emerging market currency - volatile, vulnerable to political crises, and prone to slumping at the first sight of an alarming headline.
"It's very hard to know where sterling will be a few months from now. A disruptive No Deal Brexit could see the pound weaken much further. On the other hand, a delay in Brexit with increased prospects for a deal, or even a referendum with remaining in the EU as an option, could see the pound recover sharply.
A General Election would create a further layer of uncertainty for sterling. We learnt in 2017 that opinion polls can shift dramatically during an election campaign. There is little prospect for a new deal with the EU under the short timetable currently available so the markets would probably be forced to factor in a No Deal Brexit under a majority Conservative government. A majority Labour government, on the other hand, would usher in a range of market-unfriendly policies. Arguably the pound would rally most on a hung parliament with centre parties including the Liberal Democrats needed to form a government.
12.09pm BST
After a torrid morning, sterling has suddenly bounced back off the mat.
The pound is now back over $1.20 against the US dollar, shaking off much of its earlier slump.
Sudden jump in the pound. Now up on day! The roller coaster continues... pic.twitter.com/D21Ts2LrTf
An application for an #emergencydebate on the European Union (Withdrawal) has been submitted. The Speaker will consider it later today. If successful, the debate takes precedence over today's scheduled business under Standing Order 24.https://t.co/mmWOWfREgI pic.twitter.com/vnZFlbNRBA
11.48am BST
Wall Street titan Goldman Sachs has warned its clients that a no-deal Brexis is a growing risk.
Its base case scenario is that a variant of Theresa May's deal is approved by MPs. But it also believes there's a possibility that Britain will never leave the EU at all.
Goldman Sachs raises 'no deal' Brexit chances as general election looms https://t.co/FXTz0ZZW7W
11.28am BST
Over in Brussels, the European Commission is confirming that the UK side haven't yet provided 'concrete' proposals to replace the Irish Backstop.....
EU commission spokes: "I cannot report any concrete proposals having been made that we have seen."
'We are progressively making progress in pursuing the talks' has to be one of my favourite pieces of Brussels prose in recent times.
11.13am BST
The pound would plunge below parity with the euro if there is a No Deal Brexit, predicts Ranko Berich, head of market analysis at Monex Europe.
He says the "fragile support" created by Boris Johnson's trips to Paris and Berlin last week have been obliterated by the political drama back in Westminster.
"No-deal risk remains the be all and end all for sterling.
Given that sterling's fall over the past six months has been driven by an increase in the no-deal risk, from an outside possibility to approximately 50% chance today, we estimate that the pound is likely to weaken by around a further 7% if no deal actually happens - taking GBPUSD to around $1.12 and EURGBP to just below parity.
11.00am BST
The slump in the pound since the Brexit referendum has helped overseas investors to cherry-pick UK assets.
Foreign companies spent 18.4bn buying UK companies in April-June, up from 10.8bn in January-March, according to new figures from the Office for National Statistics.
Given the persistent weakness of sterling overseas acquisition by UK companies is challenging whereas inbound investment from abroad is, despite some of the obvious uncertainties for the UK economy, encouraged by the relatively low multiples in the UK particularly when sterling weakness is taken into account.
'Meanwhile UK domestic activity is relatively strong as consolidation is more attractive than new investment, which has been weak.
10.39am BST
There's every danger that the pound will end today at its weakest closing level in 34 years.
That would hang over MPs heads as they vote tonight on whether to block no deal by seeking another Brexit extension, a move that could trigger an election next month.
Plenty of day left to go, but last time sterling closed below $1.20 according to the Bank of England's data was on 9th April 1985. pic.twitter.com/3mbuc59XTy
10.20am BST
The pound is struggling back from the three-year low hit this morning, but it still below the $1.20 mark.
10.19am BST
9.55am BST
The slump in UK construction this year shows there is a desperate need for clarity about Brexit, says Duncan Brock of the Chartered Institute of Procurement & Supply.
He says building firms are suffering badly, because nervous clients aren't happy about making major sending commitments in the current uncertain climate.
"The sector fell deeper into contraction as continuing uncertainty and a weakened UK economy took a sizeable bite out of this month's construction activity. Inevitably business confidence followed suit, dropping like a brick to its worst since December 2008 and close to the lowest depth seen in the previous recession.
"As Brexit creeps closer and confusion still reigns, this will undoubtedly heap more pressure on the UK Government to create much-needed clarity in the market.
9.47am BST
Newsflash: Britain's construction sector has been hit by a collapse in orders, as Brexit worries hurt building firms.
"Concerns about softening demand for new projects resulted in a fall in business optimism across the construction sector to its weakest since December 2008.
This provides an early signal that UK construction companies are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months.
9.39am BST
The euro is also suffering from the threat of a disruptive Brexit.
The single currency has fallen to a 28-month low against the US dollar at $1.092. That's a reminder that No Deal is seen as bad for both sides.
The first question that will be answered - today - is whether the rebels can indeed get control of the order paper again. At the moment, it isn't clear when we might find that out (today is, after all, the first day back for MPs after their summer holidays!).
To further muddy waters, a judge in Edinburgh's Court of Sessions will also be asked for a ruling on whether the Prime Minister is acting illegally in suspending parliament for 5 weeks ahead of the Queen's Speech on October 14. If we can survive today's uncertainty, we may move on to a vote tomorrow which will then determine whether the rebels have succeeded in the plan to force the PM to ask for a delay. Whether that vote passes is uncertain, since while there are enough Conservative rebels to win the vote if the opposition supports it, there may be some Labour rebels from Brexiteer constituencies who support the Government.
9.10am BST
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.
8.53am BST
There's been a lot of political drama already today, which is helping to push sterling deeper into the mud.
Already:
Strong words from Justine Greening who announced on @BBCr4today she is standing down. She said afterwards Brexit has become " the political version of Ebola."
Hammond claims Government is being "disingenuous" about wanting a fresh Brexit deal. "There is no progress. There are no substantive negotiations going on... Brussels, Berlin, Paris are still waiting for the UK proposal".
EXC: Inside Brexit War Cabinet:
- Dominic Cummings described EU negotiation as "a sham" in internal strategy meetings, per two highly placed sources.
- AG Cox warned Johnson it was "complete fantasy" to think EU would bin backstop 1/threadhttps://t.co/jU8TkvAtow
1/thread
V important thread for MPs who would support a deal but not no deal. I've had same reports re "sham negotiations" from multiple govt sources. If not true (my views were sometimes misreported when I was Chief of Staff) Government should publish its proposals to replace backstop https://t.co/YV8cGefcd2
8.38am BST
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.
8.29am BST
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%.
8.24am BST
Today's rout means the pound has lost five cents against the US dollar since Boris Johnson became Conservative Party leader in mid-July.
8.08am BST
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.
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.
7.57am BST
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!
The pound just traded below 1.20. It has traded below 1.20 a few times. most notably in 2017. But it has not closed below 1.20 since 1985.
When do we change its name from the pound to 12 ounces? pic.twitter.com/dQ308D64P5
7.46am BST
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.
7.42am BST
The pound is also losing ground against the euro, fast!
Sterling has dropped to a1.096, down nearly half a euro cent this morning. That's only a two-week low, though (the pound hit a1.072 in mid-August).
7.36am BST
If the pound falls much further against the US dollar today, it will hit levels last seen under Margaret Thatcher in 1985!
Cable dips below the $1.20 level in recent trade to trade down to levels not seen since Jan 2017. A move below 1.1986 and you have to go back to the 1980s to find a lower level -excluding Oct '16 flash crash lows. Going to be a busy day ahead for GBP traders as MPs return #Gbpusd pic.twitter.com/XlZzuWvX9c
7.26am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
POUND DROPS BELOW $1.20 FOR THE FIRST TIME SINCE JAN 2017
Related: Rebel Tories defiant in face of deselection and election threats
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.
Tuesday's GUARDIAN: "Johnson's ultimatum: back me or face a snap Brexit election" #bbcpapers #TomorrowsPapersToday pic.twitter.com/2iiBPomAhx
Related: UK factory output dives to seven-year low as Brexit fears rise
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