Pound Hits New Low On Deepening EU Exit Fears

The pound has plumbed new depths against the US dollar as it slid below $1.28 amid intensifying fears over the impact of the vote to leave the EU.

It was a new 31-year low for sterling which has already tumbled steeply in the wake of last month's poll result and slipped further, by as much as two cents, in latest overnight trading.

A weak pound means higher prices for British holiday makers and makes imported goods including many supermarket staples more expensive, though it can help exporters sell their wares abroad as they will be cheaper for foreign buyers.

Overnight trading also saw Asian stock markets turn lower with Japan's Nikkei down 1.8% and Hong Kong’s Hang Seng slipping by 1.2%.

In London, the FTSE 100 was down by 90 points or 1.4% by midday, led by sharp declines for Tesco (Xetra: 852647 - news) and Morrisons after a downbeat broker note from analysts at HSBC warning of a possible new price war in the supermarket sector.

Deepening fears about the fall-out from Brexit pushed investors towards bonds – parcels of Government debt seen as safe havens even though the returns they yield have shrunk sharply as demand for them pushes up their price.

There were also big falls for house builders such as Barratt Developments (LSE: BDEV.L - news) and Taylor Wimpey (LSE: TW.L - news) as they continued to lose value in the wake of the Brexit vote.

However on currency markets, the pound recovered some of the ground it had lost overnight.

Sterling has been dragged lower in recent days as three British commercial property funds worth about £9bn suspended trading , after the referendum prompted a rapid increase in investors trying cash in their holdings.

Aviva Investors blamed "extraordinary market circumstances" as it halted dealing in its UK property trust, a day after a similar move by Standard Life Investments. M&G Investments also suspended a major property portfolio.

Meanwhile economic survey data pointed to a second quarter slowdown in gross domestic product (GDP) growth to just 0.2% - fuelling expectations that the Bank of England could cut interest rates as soon as next week.

The Bank has stepped up efforts to allay the potential volatility from Brexit by easing capital rules for banks, allowing them to expand lending to households and businesses by up to £150bn.

Governor Mark Carney said pre-referendum warnings about what might happen in the event of a Brexit vote had "begun to crystallise" - including a hit to commercial property - and that the UK "has entered a period of uncertainty and significant market adjustment".

Angus Nicholson, market analyst at IG (LSE: IGG.L - news) , said: "Mark Carney, almost the only British leader who seems to not be resigning at the moment, emphasised the challenges the UK economy will suffer in the post-Brexit world.

"Carney's speech seems to have initiated the dawning of realisation of the longer-term impact of Brexit for many in the markets (Other OTC: UBGXF - news) ."