LONDON: Sterling fell against the dollar on Tuesday, undermined by Britain’s bleak economic and political outlook relative to other big economies, including the government’s plans to ditch pre-agreed rules on post-Brexit trade with Northern Ireland.
Monday saw British Prime Minister Boris Johnson press on with plans to pass legislation through parliament to overturn parts of a Brexit divorce deal over Northern Ireland trade . The move has angered the European Union.
“If the bill passes its current form it would clearly lead to significant deterioration in relations with our major trading partner and it would be a large drag on sterling,” said Colin Asher, senior economist at Mizuho.
The bill still has to pass through the House of Lords, so any potential drag on the currency is still some distance in the future, Asher said.
By 1530 GMT, the pound slipped 0.6% versus the dollar at $1.2192.
It flatlined against the euro at 86.200 pence after touching a near two-week low to the single currency.
Another potential headwind could come from Scotland where First Minister Nicola Sturgeon on Tuesday proposed another independence referendum for October 2023.
Johnson and his Conservative Party, which is in opposition in Scotland, strongly oppose a referendum, saying the issue was settled in 2014 when Scots voted against independence by 55% to 45%.
But the main focus for sterling is the UK economy, and how the Bank of England will balance tackling soaring inflation amid the growing risk of recession.
Inflation hit a 40-year record of 9.1% last month, the highest level of the G7 countries.
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