One analyst thinks sterling could reach parity against US dollar
Sterling could be on course to reach its lowest ever level against the dollar if the country does not sort out the political crisis and secure a good deal with Europe, a leading economist has warned.
The chief economic adviser to insurance giant Allianz, Mohamed El-Erian, said the pound is "facing a double whammy" of economic and political uncertainty with the pound set to come under sustained pressure due to weak fundamentals including a large current account deficit.
"The future value of sterling is a function of how and how quickly the structural uncertainty is resolved. If Plan B is delayed and/or doesn't involve much of a free trade set-up with the EU, it is not inconceivable for sterling to head to parity with the US dollar," he said.
The last time sterling approached level-pegging with the dollar was during 1985 when it reached $1.05 at one point. The pound is currently trading at its lowest level since that year, dipping below $1.28 at one point yesterday.
A number of analysts including at Goldman Sachs, Deutsche Bank and HSBC have predicted sterling will fall below $1.20 by the end of the year.
The pound was up this morning, however, rising 0.5 per cent to $1.2994.