Pound Remains Under Pressure Over Brexit

The pound remained on the ropes on Tuesday, a day after taking a pummelling on currency markets as the campaign for Britain to leave the EU got under way.

Sterling had sunk to a near seven-year low against the US dollar on Monday, with a sharp drop of three cents taking it close to $1.40.

The fall took place after Tory heavyweights led by Boris Johnson came out in favour of a vote to leave the EU over the weekend.

It later regained some ground but the currency was again under pressure in the following session, hovering below $1.41 - and was also lower against the euro.

At an appearance before MPs (BSE: MPSLTD.BO - news) , Bank of England governor Mark Carney acknowledged that uncertainty about the outcome of the referendum was fuelling instability for the pound, running at levels seen around the run-up to the Scottish independence referendum in 2014.

He said the Bank was doing contingency planning for the aftermath of the vote. But he said it was "not making a judgement" on the outcome or consequences of the vote.

Gertjan Vlieghe, a member of the Bank's rate-setting Monetary Policy Committee, said uncertainty could feed through to households and businesses, possibly delaying or reducing spending, though there was not yet any clear evidence of this.

However, Vicky Redwood, chief UK economist at Capital Economics said the fall in sterling "should not be viewed as an entirely negative development, as the much longed-for rebalancing of the economy probably requires a significantly lower exchange rate".

A weaker pound helps Britain's beleaguered exporters because it makes their goods cheaper abroad.

It also means UK holidaymakers preparing for an Easter break face higher costs because their money will not go as far when they are buying euros on the Costa del Sol (LSE: 0NJP.L - news) or dollars in Florida.