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Pound slips as Boris Johnson says no deal Brexit 'a good outcome'

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3 mins read
Britain's Prime Minister Boris Johnson leaves Downing Street in London, Wednesday, Sept. 2, 2020. The Prime Minister will attend the first session of Prime Ministers Questions since parliament returned Tuesday after the summer break. (AP Photo/Kirsty Wigglesworth)
Britain's Prime Minister Boris Johnson leaves Downing Street in London, Wednesday, September 2, 2020. Photo: AP Photo/Kirsty Wigglesworth

The pound fell against the dollar and the euro on Monday, amid growing fears that the UK is heading for a “no deal” Brexit.

Speculation mounted over the weekend that Britain was preparing for the collapse of trade talks with the European Union, after a report that the UK was planning to renege on key parts of the Withdrawal Agreement.

In an email to Conservative Party members on Monday, Prime Minister Boris Johnson said he would “not back down in negotiations” and said no deal would be “a good outcome.”

The collapse of talks would put the UK on course to exit the Brexit transition period without a deal at the end of December, an outcome widely seen as economically damaging for the UK.

“The Brexit heat is back on and sterling is, in our view, unprepared,” Petr Krpata, chief FX strategist at ING, wrote in a note on Monday.

Sterling was down 0.5% against the euro to €1.1145 (GBPEUR=X) by lunchtime.

The pound sold-off against the euro on Monday. Photo: Yahoo Finance UK
The pound sold-off against the euro on Monday. Photo: Yahoo Finance UK

The pound was down 0.8% against the dollar, falling to $1.3161 (GBPUSD=X). It extends a recent slide for sterling against the greenback.

The pound's recent slide against the dollar. Photo: Yahoo Finance UK
The pound's recent slide against the dollar. Photo: Yahoo Finance UK

The slide came after the Financial Times reported late on Sunday that the UK government was preparing to table legislation that will override key parts of the Brexit withdrawal bill signed with the EU last year. Citing three people familiar with the plans, the FT said the move risked collapsing trade talks with Brussels.

READ MORE: Small firms call for Brexit transition vouchers amid negotiation deadlock

Environment Minister George Eustace told BBC Breakfast on Monday the government was “committed to implementing” the Withdrawal Agreement signed with the EU. He said legislation that threatened to break parts of the agreement was simply “to iron out a few remaining technical details as to how the Northern Ireland protocol would work.” He added this would only come into play if trade talks with the EU collapsed.

However, Prime minister Boris Johnson appeared to be positioning his government for this outcome. National newspapers were briefed on comments the prime minister will make later today claiming a no deal Brexit would be a “good outcome” to negotiations.

Johnson also set a deadline for mid-October to strike a trade deal, piling further pressure on negotiations.

“If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on,” Johnson said in the email to Conservative Party members on Monday.

READ MORE: UK PM gives October 15 deadline for Brexit deal

The eighth round of talks between the UK and EU are due to begin in London on Tuesday.

“The UK government has made it clear they would be content to walk away from the table unless it gets a deal that it wants,” David Madden, a market analyst at CMC Markets, told Yahoo Finance UK.

“Come early 2021, UK-EU trading could be done on basic WTO rules, and the prospect of [this] outcome is weighing on the pound.”

Jordan Rochester, a FX strategist at Nomura, said in a note to clients on Monday: “Risks remain skewed to the downside, in our view for reasons more than Brexit. Furlough ending in October, tax rises on the agenda in the Autumn budget and the UK still suffering from low levels of economic mobility.”