The Bank of England has downgraded its growth forecast for 2019 growth to 1.2%, which would be the smallest rise since 2009.
Sterling tumbled on the news and was trading 0.6% down versus the US dollar at $1.285. Against the euro, the pound was down 0.3% at €1.134.
The PM flew to Brussels today to push for concessions from EU leaders on the divorce deal agreed with them last year, which has been rejected by Parliament.
Both Mr Tusk and Juncker have repeated the EU will not consider reopening discussions on the backstop.
Schroders Senior European Economist, Azad Zangana said: “The Bank has blamed slower activity abroad, but most of the downgrade is caused by the effects of the heightened level of uncertainty related to Brexit. “
Andy Scott, Associate Director at JCRA, the independent financial risk management consultancy said: “Sterling slid across the board on Thursday as the market became less optimistic over Brexit, and the Bank of England slashed its growth forecasts. Having rallied strongly for two weeks straight on market optimism that a “hard Brexit” was no longer as much of a risk, Sterling is now in retreat.
“The reality of the situation is that both the EU and the UK are dug in to their respective positions, with Theresa May insisting that no-deal remains an option and there will be no extension to Article 50. With only seven weeks to negotiate an acceptable amendment to the current withdrawal agreement that was so heavily defeated last month, the market is starting to re-evaluate the risk for Sterling. What we have learnt since the Brexit vote in 2016 is that when Sterling rallies on Brexit optimism, the reality will often turn out to be disappointing and Sterling will weaken.
“Meanwhile, the Bank of England just slashed its growth forecast for this year, reflecting the slowdown in the UK economy that appears to be deepening as a result of Brexit and weaker global growth. The slower growth means there is less risk of inflationary pressures building and less pressure for the bank to raise interest rates. The European Commission also slashed its growth forecast for the Eurozone, highlighting the diminished prospects for economic growth in Europe.
“We see risks that Sterling weakens further while there is no imminent prospect of a breakthrough in the current Brexit stalemate. This is especially the case versus the Dollar where the high yield continues to make the currency attractive. The weak growth and risks that exist to the Eurozone from Brexit may limit the downside for the GBP/EUR pair, but we could still see recent lows of 1.10.”