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Pound could hit parity with US dollar for first time, leading economist warns

Published 07/07/2016

The pound dropped to a fresh 31-year low on Wednesday, to under 1.28 US dollars
The pound dropped to a fresh 31-year low on Wednesday, to under 1.28 US dollars

The pound could hit parity with the US dollar for the first time in history unless the Government gets its "political act together" after the Brexit vote, a leading economist has warned.

Mohamed El-Erian, chief economic adviser to European insurance giant Allianz, said the Government must "urgently" draw up a post-Brexit plan including new trade agreements or sterling could fall towards parity with the greenback.

His warnings come after the pound dropped to a fresh 31-year low on Wednesday, to under 1.28 US dollars, although it has since recovered a little to 1.30 dollars.

Mr El-Erian reportedly said: "After the Brexit referendum, the UK has to urgently get its political act together."

He added: "If Plan B is delayed and/or it 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."

Deutsche Bank experts have also predicted the pound to fall as low as 1.15 US dollars.

There are fears of yet more pressure on sterling if the Bank of England decides to cut interest rates in next Thursday's Monetary Policy Committee (MPC) meeting.

Bank governor Mark Carney has already said policymakers are likely to cut rates over the summer to shore up the economy after the referendum result, which has hit the pound.

Sterling has been weakened further by worrying economic data and more warnings from Mr Carney this week that fears over the impact of a Brexit vote have started to "crystallise".

Traders at ETX Capital said sterling could have further to fall, but added forecasts of parity with the dollar were "a little far fetched".

Andrew Edwards, chief executive of ETX Capital, said: "So much depends on what the Bank of England decides to do next week.

"Cut interest rates further and the pound could easily have a leg lower."

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