Analysts at Barclays have slashed their growth forecast for next year, predicting that the Brexit vote will cause “prolonged uncertainty and financial stress.”

They now expect the UK economy to contact by 0.4% next year, down from growth of 1.8% previously. They also cut their euro area growth forecast to 0.6%, down from 1.7%.

Barclays also see several flashpoints in the months ahead which could even put the future of the eurozone in doubt again:

For example, the UK-EU exit negotiations could turn rancorous. And market upheaval could be even greater if an EMU country were to actively question EU membership; redenomination risk could return.

Hence, investors are likely to pay close attention to the October referendum on constitutional reforms in Italy, as well as the general elections in the Netherlands, France and Germany in 2017. Any outcome that helps anti-EU political parties would likely be poorly received by markets

Newsflash: The British economy appears to have contracted last month.

New figures from the National Institute Of Economic and Social Research indicate that the economy was weakening, even before Britons headed to the polls.

NIESR estimates that the economy grew by 0.6% in the April-June quarter, up from 0.4% in January-March. So far so good....

But before anyone gets the bunting out, NIERS also estimate that strong growth in April fizzled out in May, leading to the economy shrinking in June.

Jack Meaning, Research Fellow at NIESR, explains:

“At first glance this represents a robust rate of quarterly growth for the UK economy. However, the quarterly figure masks an important within-quarter pattern. Our monthly estimates suggest that April saw a large expansion in GDP, which then stagnated in May.

The estimate for June is one of an intensifying contraction across the board, but this is not enough to offset the very strong April numbers.

What it does suggest is that when April drops out of the 3 month calculation we should see a quick deterioration of growth, especially if the estimated contraction in June persists or accelerates into July and beyond.”

Christine Lagarde, head of the International Monetary Fund, has called on Britain to resolve its relationship with the European Union quickly, to limit the economic damage of Brexit.

She’s echoing Mohamed El-Erian’s warning that uncertainty will hurt the UK economy.

In an interview with the Financial Times, Lagarde says:

“We want to see clarity sooner rather than later because we think that a lack of clarity feeds uncertainty, which itself undermines investment appetites and decision making.

The IMF believes could UK cushion the impact of leaving the EU by agreeing a Norway-style agreement (basically getting access to the single market, but also agreeing to EU laws and freedom of movement). That would only cut 1.5% off GDP growth by 2019

However, if the UK clatters out of the EU without a new trade deal, it will revert to standard WTO tariffs - meaning the economy would be 4.5% smaller than otherwise by the end of the decade. The boss of the WTO has already warned that this would cost consumers £9bn per year.

It’s not clear when the UK can deliver the clarity which Lagarde is seeking. This morning, foreign secretary Philip Hammond told MPs that the government simply isn’t in a position to start ‘substantive negotiations’ with Brussels.

Five top executives from the biggest international banks based in London have pledged to work together to protect the City following the Brexit vote

Bosses from Goldman Sachs, Standard Chartered, Bank of America Merrill Lynch, Morgan Stanley and JP Morgan issued the promise, after a meeting with chancellor George Osborne.

They cite Britain’s “brilliant workforce” and “stable legal systems” as key assets.

Here’s the statement:

Britain’s decision to leave the EU clearly presents economic challenges which we are determined to work together to meet.

We will also work together to identify the new opportunities that may now become available so that Britain remains one of the most attractive places in the world to do business.

One of Britain’s key economic strengths is that it is a world leading financial centre.

It has one of the most stable legal systems in the world, a brilliant workforce and deep, liquid capital markets unmatched anywhere else in Europe, all of which are underpinned by world class regulators.

In recent years it has established itself as a global hub for renminbi, rupee, Islamic finance and green finance, as well as leading in new markets such as FinTech.

Today we met and agreed that we would work together to build on all this with a common aim to help London retain its position as the leading international financial centre.

It’s signed by:

• Chancellor of the Exchequer, George Osborne
• Mr Bill Winters, CBE, (Group Chief Executive, Standard Chartered)
• Mr Michael Sherwood, (Vice Chairman and co-CEO, Goldman Sachs International)
• Mr Alex Wilmot-Sitwell, (President (Europe and Emerging markets excl. Asia), Bank of America Merrill Lynch)
• Mr Robert Rooney, (CEO, Morgan Stanley International)
• Mr Viswas Raghavan, (Deputy CEO and Head of Investment Banking (EMEA), JP Morgan)

Mohamed El-Erian’s warning that the pound could fall to parity with the dollar unless UK politicians urgently devise a Brexit plan has sent ripples through the City today.

Andrew Edwards, CEO of ETX Capital, report:

“The chatter on forex desks is that the pound could hit parity with the dollar.

Although not impossible, this seems a little far-fetched as sterling would have to drop considerably from where it is now. Parity would represent an all-time low for the pound.

Deutsche Bank is pessimistic with its forecast of $1.15 for cable – the consensus is $1.20.

It all depends what the Bank of England does next week -- a rate cut (to a new alltime low) could easily send the pound tumbling.

But Mark Carney and colleagues could vote to leave borrowing costs unchanged, which Edwards reckons would be “the sensible move”.

Increasing credit supply doesn’t achieve much if there is no demand and it’s the demand side that matters most.

A firm vote to hold rates where they are would send a clear signal to investors that the Bank is confident the UK can weather this storm and that it doesn’t want the pound to drop further. Keeping its powder dry would mean it has ammunition for another day, should financial conditions get a lot worse.

The boss of investment bank JP Morgan has warned that he may move thousands of jobs out of the City, if Britain loses full access to the single market.

Jamie Dimon told Bloomberg that it’s crucial that firms in London retain the ability to ‘passport’ into other EU countries and sell financial services there.

If that passporting rule is broken, then JP Morgan staff will be packing their bags.

Dimon explained:

“If we have that passport after Brexit, we likely would not have to make any change at all.

“But I think the European Union will not accept that. It will put more conditions on the U.K. and might force banks to become smaller in London.”

Those with memories of the financial crisis might welcome an exodus of bankers. One problem, though, they do provide a lot of tax receipts:

The chocolate bar in your pocket may soon cost more, following the sharp falls in the pound.

The price of cocoa in sterling terms has hit its highest level since 1977, at £2,487 per tonne.

Cocoa’s a key ingredient in chocolate, of course, and the Financial Times reckons we’ll soon see the impact on the shelves.

They warn:

If the collapse of sterling was not depressing enough, the price of chocolate for UK buyers could get higher as cocoa, the key ingredient hit a 39-year high.

Andrea Leadsom, one of the contenders to be Britain’s next prime minister, has heeded Mohamed El-Erian’s warning that the UK needs to arrange a workable trade deal with Europe.

A free trade deal with the EU is vital, Leadsom says, as she outlines her economic platform.

She told supporters that “no-one needs to fear” Britain’s decision to leave the European Union, as the government will move carefully.

Trade must be the top priority, she says, adding:

Britain must get continued tariff-free trade with the EU and continued free trade with other countries as at present, plus agreements with other fast-growing economies.

However, she doesn’t give any details about how she’ll negotiate this happy outcome.

Our Politics liveblog has all the details:

Leadsom was also remarkably upbeat about the financial consequences of the Brexit vote.

She claims that the slump in the pound is partly because the markets called the result wrong – ignoring the fact that economists - correctly - predicted sterling would tumble to current levels.

She also argues that lower sterling is good for exports, makes inward investment more attractive, and means Britons will import less and buy more at home.

Yes, but it also means goods are going to cost more....

Leadsom also loses marks for declaring that the FTSE 100 is now higher than two weeks ago, without explaining it’s mainly due to the weak pound.

Brexit uncertainty is also casting shadows over Sports Direct, the retail chain that has faced criticism over its working practices.

Sports Direct buys many of its products overseas, so the slump in the pound since the Brexit vote is having an immediate impact on current profitability.

It also reported this morning that pre-tax earnings fell by 8.4% in the last financial year; meaning the staff bonus scheme won’t pay out.

And CEO Dave Forsey warned that consumer confidence will be hit by the “current political uncertainty”. Shares are up 11% this morning, though, suggesting it has done better than the City expected.

The pound could fall closer to parity with the US dollar if the Bank of England cuts interest rates closer to zero.

Banking analyst Sandy Chen of Cenkos Securities believes the BoE should resist slashing borrowing costs from 0.5% to zero. He argues it would send sterling slumping to new 31-year lows.

He writes:

There is talk of a 50 basis point rate cut next week. Note to Mark Carney: Please don’t.

A 50bp cut won’t boost borrowing, but it will almost certainly lead to another drop in cable (the pound/US dollar exchange rate).

In our opinion, if rates were kept on hold, then investors (including those overseas UK commercial property investors who are now on the sidelines according the BOE’s own Financial Stability Report) might be tempted to do some bottom-fishing.

The British pound could slump to parity with the US dollar unless UK politicians get their act together over the Brexit vote, a top financial figure has warned.

Mohamed El-Erian, chief economic adviser to investment giant Allianz, says the UK government urgently needs to start developing a credible “Plan B” to European Union membership, that gives British firms a free trade agreement with the bloc.

Speaking to Reuters, El-Erian warned that sterling is very vulnerable, as:

“After the Brexit referendum, the UK has to urgently get its political act together, including a new Prime Minister who can negotiate effectively with the EU.

Plan B depends on the politicians in London and across the Channel, but so far they have not stepped up to their economic governance responsibilities.”

UK negotiations with Brussels are effectively in limbo now, while the Conservative Party choose a new leader to replace prime minister David Cameron.

Yesterday, the pound hit a 31-year low of $1.2798 against the US dollar. Traders around the globe are watching nervously to see how Britain’s relationship with the EU changes following last month’s referendum.

As El-Erian puts it to Reuters’ Guy Faulconbridge:

The future value of sterling is a function of how and how quickly the structural uncertainty is resolved – if Plan B is delayed and/or it doesn’t involve much of a free trade setup with the EU, it is not inconceivable for sterling to head to parity with the US dollar.

The pound’s record low was $1.05, in late February 1985.

However, if a deal is reached to give access to the EU single market, the pound could rally back to pre-vote levels.

Many EU leaders have warned that access to the single market means accepting the four freedoms of movement - for goods, services, capital and people. Some Leave campaigners, though, argue that Britain could get access and also impose some restrictions on migration.

More here: Allianz’s El-Erian says UK must urgently get its act together or dollar parity could beckon