May's loosening grip on power sends sterling plummeting and sinks UK-exposed shares

The last gamble of Theresa May to win over MPs to support her Brexit deal appeared to unravel putting a question mark over her future and weighing on sterling.

Market commentators said that her leadership appeared to be drawing rapidly to a close and bringing closer the likelihood of Brexiteer Boris Johnson becoming prime minister.

“If rumour is to be believed, Theresa May might not even last in power long enough to get parliament to vote again on her deal. We have had plenty of rumours about plots in the last few months, but a rebellion among mid-level cabinet ministers, and suggestions of senior members going in for ‘chats’ with the PM seem to point to a growing desire for change,” said Chris Beauchamp, chief market analyst at online broker IG.

“Sterling continues to plummet, losing the $1.27 level again today on fears a Boris premiership is now much closer,” he said. The pound slid against the dollar to $1.2675 and to around 88 pence against the euro.

The two main Irish banks had contrasting fortunes. AIB shares gained 2%, while Bank of Ireland, which has a significant lending operation through the UK Post Office, slid 3%.

Bank of Ireland’s earnings in Britain, when translated into euro, can be affected when sterling falls.

And a weakened pound also makes it more difficult for Irish exporters, and SMEs in particular, to make profits when selling goods and services across the Irish Sea. British shares directly exposed to the UK economy, such as banks and homebuilders, fell sharply, with Royal Bank of Scotland shedding 3.6% and Bovis Homes ending 3% lower.

In Ireland, shares in housebuilder Glenveagh fell 2% but Cairn Homes ended slightly higher. Dalata Hotel Group which also draws some of its revenues and profits from Britain fell 3%. However, ferry firm Irish Continental Group, or ICG, rose slightly.

Paul Dales, chief UK economist at Capital Economics, said that UK political risks were hitting British financial markets.

“The reaction to Theresa May’s ‘new’ Brexit deal suggests that the chances of a deal have fallen and the chances of another delay, a no deal, no Brexit and-or a general election have all risen.

“It’s hard to build this into our forecasts, but the risk is that GDP growth and interest rates stay lower for longer,” Mr Dales said.

He said: “The pressure on the Prime Minister to resign in the next few days and weeks is growing. Given that the latest polls suggest that the Tories may get just 7% of the vote in Thursday’s EU elections, that pressure is only going to intensify. The end of May might come before the end of May.”

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