Pound tumbles over fears of ‘hard Brexit’

LONDON — The pound fell, equities slid and gold climbed on concern that United Kingdom Prime Minister Theresa May is prepared to lead Britain out of the European Union’s (EU) single market and as the United States President-elect suggested other countries could break from the bloc.

The pound at one point dropped to a three-decade low against the US dollar, barring its “flash crash” in October, and as much as 1.6 per cent against the Singapore dollar.

Mrs May is due to outline her vision for Brexit today, and newspapers reported at the weekend that she would signal a willingness to withdraw from tariff-free trade with the region if that is the price of being able to curb immigration and strike commercial deals with other countries.

A spokeswoman for Mrs May called the reports about the planned tone of her upcoming speech “speculation”.

That helped steady the sterling in London trading but could not repair all the damage. The UK currency traded 1 per cent lower at US$1.2065 (S$1.73) at mid-afternoon in London after touching US$1.1986, its weakest level since October.

Against the Singapore dollar, the pound fell as low as S$1.711, before recovering slightly to S$1.7231.

“Markets are trading in risk-aversion mode,” said Mr Neil Jones, the head of hedge-fund sales at Mizuho Bank in London. “Investors and corporates around the world are concerned by the prospect of a hard Brexit. Pound rallies are limited and weak, while plunges are harsh and prolonged.”

Asian stock markets also ended lower yesterday as investors turned jittery, with the Singapore Straits Times Index losing 0.4 per cent and the Hang Seng Index ending 1 per cent lower.

The price of gold, a frequently sought haven in uncertain times, hit its highest level since November.

With Mrs May expected to trigger Article 50 in March, which will start formal EU separation proceedings, the stakes are already rising.

British Finance Minister Phillip Hammond was quoted on Sunday as saying the country could change its economic model to regain competitiveness if it were to leave the EU without an agreement on access to the single market. That was interpreted as a hint he could cut corporate taxes and employment rules.

Mrs May’s spokeswoman said yesterday that the Prime Minister shared Mr Hammond’s view that Britain stands ready to consider alternative economic models following Brexit if forced to.

“She shares the view that (Hammond) set out. That we would want to remain in the mainstream of a recognisable European style taxation system,” she told reporters. “But if we are forced to do something different because we can’t get the right deal, then we stand ready to do so.”

In an interview with The Times of London newspaper, US President-elect Donald Trump said that Britain’s exit from the European Union would turn out to be a great thing and promised to offer the UK a quick and “fair” trade deal when he meets Mrs May shortly after taking office. He also forecast that other countries would leave the 28-nation bloc.

Mrs May’s spokeswoman said yesterday that the Prime Minister welcomed Mr Trump’s commitment to working on a trade deal with Britain. She added that she expected the first meeting between the British leader and Mr Trump to take place in the United States, and that arrangements were being worked on.

“That highlights one of the opportunities of the UK leaving the EU,” said Ms Helen Bower, Mrs May’s spokeswoman. “We will be having scoping discussions to look at the areas where we can benefit.” AGENCIES