Talk of an early general election has also hurt the pound.

Nomura analyst Jordan Rochester said:

“Election talk is why the pound is underperforming again, not much of a surprise to hear given the working majority is close to no majority at all.

Hence why suspending parliament talk is in the air still. It’s hard to see any possible positive news for the rest of this week to stop the current trend.”

Capital Economics also predict further losses for the pound, pushing it towards dollar parity.

Analyst Hubert de Barochez points to Brexit worries, and recent weak economic data.

He told clients today:

As far as the outlook for Brexit is concerned, bookmakers’ odds indicate that investors have now all but ruled out the possibility that the UK leaves the EU with a deal before the end of 2019. They still suggest that the most likely outcome is that the UK has not left at all. And for all the talk of no deal, they give it a chance of only one in three.

Therefore, sterling could still fall a lot further in the event of no deal, as this outcome is far from being fully discounted. In fact, they are assigning it about the same probability as they did a vote to leave the EU in the original referendum – something which came as a huge shock when it actually happened.

Meanwhile, even if a deal is reached, we doubt that sterling would do very well this year. This is because we expect appetite for risk to wane across the globe as the world economy slows, prompting the dollar to strengthen against most currencies, including sterling.

The upshot is that, in our view, the near-term risks for the currency are still skewed to the downside. But there is a chance that the pound will rebound in 2020 or 2021, if inflation rises and the BoE tightens monetary policy as a result

Time for a quick recap

Analysts have warned that the pound could slump towards parity against the US dollar, if Britain crashed out of the EU without a deal.

Morgan Stanley warned:

The pound has come under intense selling pressure since Prime Minister May withdrew from her party leadership position, leaving markets with increased concern that the U.K. may be heading towards a harder Brexit.

Should this scenario materialize, pound-dollar could fall into the $1.00-$1.10 range.”

The pound hit a fresh 27-month low against the dollar this morning, amid growing fears that Boris Johnson or Jeremy Hunt could trigger a disorderly Brexit.

Sterling hit $1.2382 for the first time since March 2017, and also scraped a six-month low against the euro at €1.1075.

The IMF has warned, meanwhile, that the US dollar is already overvalued, while Germany is benefitting from an unduly-weak euro.

UK house prices continue to be hurt by Brexit uncertainty. In London, they plunged by 4.4% year-on-year in May, the worst decline since the financial crisis.

Across the country, growth slowed to 1.2%.

Consumer price inflation stuck at 2% in June, hitting the Bank of England’s target for the second month running.

The IMF is also concerned by the gap between countries who run a trade surplus, and those who run a deficit.

Gita Gopinath, head of the Fund’s research department, says politicians need to do more to improve their fiscal position while also boosting growth:

Many countries are now near full employment and have limited room to maneuver in their public budgets. So, governments need to carefully calibrate their policies to achieve domestic and external objectives.

Countries with excess current account deficits, like the United Kingdom and the United States, should adopt or continue with growth-friendly fiscal consolidation, while those with excess current account surpluses, like Germany and Korea, should use fiscal space to boost public infrastructure investment and potential growth.

Many economists and commentators are alarmed by the slowdown in America’s building sector.

Here’s some early reaction:

America’s housing market is also slowing.

The number of permits granted to build a new home plunged by 6.1% in June, new government data shows. It hit an annual rate of just 1.22 million units, the lowest since May 2017.

That suggests a drop in demand, or that builders are nervous about taking on new projects.

The number of actual housing starts also slowed, down 0.9% to an annual rate of 1.253 million, according to the Commerce Department.

America’s housing market has looked lacklustre for several months -- this may bolster the case for US interest rate cuts.

Paul Smith, chief executive of Haart estate agents, agrees that London house prices have further to fall:

“The Tory leadership battle is soon to come to a head. Whilst Boris’ proposals to cut stamp duty are attractive, the constant uncertainty and political instability is impacting property markets across the UK, with price growth slowing to just 1.2% this month.

This reduction is largely being driven by price falls in London which tends to feel the impact of political unrest more acutely than other regions of the UK. As we edge ever closer towards the October 31st deadline, and indeed the prospect of a potential no deal scenario, we can perhaps expect a further decline to London house prices over coming months, but thereafter more positive headlines.”

More expensive London houses have suffered the biggest price hit.

The price of a detached home has slumped by 6% in the last 12 months, while terraced homes are only 2.9% cheaper.

London’s Evening Standard newspaper is splashing on the capital’s house price slump:

Ironically, the Standard’s editor played a role in London’s house price boom.

When he was chancellor, George Osborne introduced the Help To Buy scheme that helped people borrow more money for a house. This drove prices higher - boosting housebuilders’ profits rather than making property affordable.

This is a neat way of showing how the UK housing market has cooled (green = strong growth, while red = weak)

With Britain just three months away from a possible no-deal Brexit, you need strong nerves to consider signing up for a large mortgage.

Paul Stockwell, Chief Commercial Officer of Gatehouse Bank (a Sharia-compliant challenger bank) says economic uncertainty is keeping potential buyers out of the market:

“Falling house prices in London have become the norm, but the small annual decline in the North East points to low transaction volumes having an impact on the market across England.

“It isn’t the first time prices fell in the North East this year, they also took a small dent back in February and March, but declining buyer activity is almost certainly forcing sellers to drop their prices.

“Brexit uncertainty is playing a role, with buyers still in the dark over which way the wind is going to end up blowing, but affordability is almost certainly dampening price growth.

“If the annual price growth drops any lower, we will see the lowest figures in six years, and with price falls registering outside London and the South East, this is starting to look more likely. Further price falls may be needed to bring buyers back to the table, especially while they wait on Brexit to be decided.”

Economist Rupert Seggins points out that London house prices have still outpaced the rest of the UK over the last decade, despite weakening since the EU referendum:

Richard Donnell of property website Zoopla predicts that the London house prices slide could bottom out next year:

“Annual price falls in London are acting as a drag on the headline rate of UK house price growth, but after three years of price falls in London there are signs that the coverage of price falls is starting to narrow, especially looking at growth over the last three months.

We expect the pace of annual price falls in London to moderate over 2019 and in 2020.

In late 2018 the proportion of local London markets experiencing annual price falls peaked at 80% and has been steadily declining since this time, over the last three months just 28% of markets registered price falls in London. Average residential values in London are bottoming out for now and we predict sales volumes will slowly start to grow across late 2019 and market fluidity will gradually return.

More reaction to the slide in London house prices:

UK house prices actually peaked last summer, when the average property changed hands for £232,000.

Today’s data shows the average UK house price was £229,000 in May 2019, up £2,000 compared with the previous year.

UK house price growth has been slowing steadily since the EU referendum in 2016.

At just 1.2%, house price inflation is at its joint lowest since 2013.

This offers some relief to those trying to get onto the housing ladder, as wages are rising by 3.6% (according to yesterday’s labour market data).

Brexit uncertainty and the sheer cost of buying property in London are both weighing on the capital’s housing market.

So argues Jonathan Harris, director of mortgage broker Anderson Harris:

’House price growth is slowing as sentiment continues to weaken, partly as a result of Brexit uncertainty. While prices fell in London by 4.4% over the year to May 2019, affordability is still an issue for those buying in the capital and south east as prices remain relatively high compared to incomes.

‘Mortgage rates remain low and continue to support transactions. Remortgaging remains strong as many people stay and improve rather than footing the considerable bill for a move to another address.’

The slump in London house prices is a reminder that the capital is vulnerable to Brexit uncertainty.

Some City banks have already begun moving jobs to other European countries, for example, as they expect to lose their ‘passporting’ rights to offer services across the EU after Brexit.

European Union migrants based in the capital may also be holding off buying a home until they know the UK’s future relationship with the rest of the Europe. Many have already left Britain, with net migration turning negative late last year.

On a regional basis, house prices are rising faster in Scotland (+2.8%), Wales (+3%) and Northern Ireland (+3.5%) than in England (+1.0%).

This chart shows how English house price growth has slowed sharply, dragging the UK-wide growth rate down to 1.2%.

And within England, house price growth has been rather stronger in the North than the South:

The slump in London house prices is quite a shock - here’s some snap reaction:

The average London house now costs £457,000, the ONS says, compared with £488,527 in July 2017.

Despite recent declines, London is still the most expensive place to buy a house, followed by the South East (£324,000 on average) and the East of England (£324,000).

In the North East, property is changing hands for £128,000 on average -- still below the levels before the financial crisis a decade ago (when Northern Rock’s reckless lending policies had driven prices up).

Ricardo Evangelista, senior analyst at ActivTrades, fears that the pound will be pummelled to fresh lows through the summer:

The Pound hit a two-and-a-half-year low against the US Dollar and is currently trading below $1.2390. Sterling weakness, to some extent, results from seasonal factors, as it tends to happen during the British summer, but is mainly explained by what is going on in the political sphere.

The willingness to stomach a no-deal Brexit has been growing in the UK, as the political debate concerning who will be the next British Prime Minister has reduced itself to that lowest common denominator, with both candidates boasting about their readiness to walk away from the EU without a deal. It is therefore hardly surprising that the markets are stepping up preparations for what is seen as the worst possible scenario for the UK’s economy. Looking ahead to the rest of the summer, Pound risk is surely to the downside.

UK holidaymakers heading abroad this summer will feel the impact of the pound’s slide. Sterling will buy less at the foreign exchange desk, so hotels, meals and ice-creams on the beach will all cost more.

As Bloomberg puts it:

The currency is down 4% against the euro, 5% against the dollar and 6% against the Turkish lira since mid-April. Those holidaying in Brazil will find their spending power particularly diminished, thanks to sterling’s 8% drop against the real in the period.

The slump in the pound this week underlines the fact that political risk is a key threat to the UK economy.

A Bank of England survey released last week showed that political instability is the top threat worrying banks, asset managers, hedge funds, pension funds and other investors.

Other worries include a house price crash, a slowdown in the global economy, or a crippling cyber attack.

Credit rating agency DBRS has cited this work in a new report this morning, warning that instability in Westminster could rock the markets.

They say:

The number one risk cited this year is U.K. political risk. The second- and third-largest risks identified were geopolitical risk and the risk of a cyber attack. These three risks have been consistently at the forefront of survey respondents’ minds for over a year and roughly represent a combined 50% of the worries of the financial market participants.

Notably, the risks that have shown signs of rising are that of an economic downturn (though not in the U.K.), and, likely as a result, a risk of financial market disruption. Historical worries such as sovereign risk, funding, interest rates, regulation and property prices have all diminished. Between 2011 and 2013, sovereign risk was highlighted as the top risk to the financial system in the U.K., but since 2006, the number one concern has been by U.K. political risk.

Things aren’t looking too rosy in Europe’s economy either.

European car sales plunged by 7.8% year-on-year in June, new figures from industry body ACEA show. That includes an 8.4% slide in France, an 8.3% slump in Spain, and a 4.7% decline in Germany.

ACEA says the sharp drop is partly because there were fewer working days in June 2019 than a year earlier.

But the wider picture isn’t good. So far his year, EU car registrations are down 3.1% compared to 2018.

This may indicate that consumer confidence is weakening, as the wider European economy slows.

Brexit worries are also weighing on the London stock market this morning.

Shares in housebuilders such as Taylor Wimpey and Persimmon are down 1% -- they would be hit hard if a no-deal Brexit hurt consumer confidence.

The broader FTSE 100 has dipped a little, down 9 points at 7568.

Neil Wilson of Markets.com fears that the pound could slump back towards the $1.21 mark, last seen in March 2017.

He explains:

Make no mistake, this decline in the pound is down to traders pricing in a higher chance of a no-deal exit.

Ongoing uncertainty about the direction of Brexit it what is really driving the pound. We need to await the outcome of the Tory leadership race. There is a chance that the pound could find some bargain hunters if they feel likely winner Boris Johnson will soften his views on a hard exit on October 31^st. Both leadership candidates are taking the hard line on Brexit to appeal to the Tory membership, but once faced with the granite reality of Number 10, recalcitrant MPs and the EU, realpolitik will win. That said, we are hurtling towards no deal and it may prove a disastrous move for a future PM to delay again.

The pound has now lost eight whole cents against the US dollar in the last two months, as the Conservative Party leadership contest has rumbled on.

This chart, from the Financial Times, shows how sterling has been the weakest major currency since March - when the Brexit deadline was delayed by another six months.