The British pound dropped in early trading today following a warning that a hard-Brexit would result in a 100-billion pound blow to public finances.

According to a report issued by the Institute for Fiscal Studies think-tank, if the UK should leave the EU without a transitional agreement in place, the budget deficit could rise to 4 per cent of gross domestic product.

With less than a month to strike a Brexit deal, concerns of sizeable differences between Britain and the EU continue to linger. And as the looming deadline approaches, there appears to be little sign of the EU accepting the UK’s proposed changes to the existing Withdrawal Agreement. 

The EU would need to agree to the proposed terms promptly in order for a new agreement to be finalised at next week’s summit.

Last week, Britain sent a proposal to Brussels to replace the Irish border “backstop”, however, the proposal has been rebuffed by EU leaders.

In the event of a hard-Brexit, large increases in public spending to help stabilise the economy would be put in place, according to Johnson’s finance chief Sajid Javid. 

This would leave the government no room for any additional budget shortfalls if it is to stick to a fiscal rule that claims that public debt must fall as a proportion of GDP next year.

To add to the cable’s shortfalls, a recent report from the British Retail Consortium showed a 1.3 drop in retail sales last month, down from a 0.7% increase last year.

By 7:35am GMT, GBP/USD hit $1.2279, down 0.1%, having earlier hit a one-month low of $1.2269.  

Against the euro, the pound was down 0.2%, hitting 1.1180, having hit a four-week low of 1.1175.

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Dalia Hilmi
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