Flash crash wipes six per cent off the value of the pound

A 'flash crash' wiped nearly six per cent off the value of the pound early today as alarm about the impact of a hard Brexit swept through financial markets.

The “insane” fall was being blamed on hard line comments by French president Francois Hollande triggering a wave of automatic, computerised sell-offs of sterling.

At one stage Britain’s currency plummeted to below $1.14 dollars in a few minutes of frenzied trading. The Bank of England this morning said it was “looking into” the extraordinary slump.

The volatility came at the end of the Tory annual conference week during which Theresa May set a date - by the end of March next year - to trigger Article 50 and begin the two-year process to leave the EU.

The Pound’s “rollercoaster” saw it plunge in thin trading overnight from $1.26 to a new 31 year low. It swiftly recovered much of the losses but was still trading heavily down more than 2.5 cents at $1.2387 by mid morning.

The cheaper Pound will help exporters as the UK seeks to reshape its position on the world stage as a champion of free trade.

But its fall also sparked warnings that the cost of electrical goods for Christmas, as well as petrol and food, will rise.

The Prime Minister’s vow for Britain to regain control of its own borders deepened worries in the City and other European capitals that the UK was moving towards a “hard Brexit”.

Mr Hollande responded by calling for the EU to stand “firm” in Brexit negotiations or risk putting in peril the union.

“Britain wants to leave, but doesn’t want to pay. That’s not possible,” he said in a speech at the Jacques Delors Institute in Paris.

“Britain decided to go for a Brexit, in fact I believe a hard Brexit. We have to be firm.”

Senior British ministers believe French political leaders are turning to tough rhetoric ahead of their presidential elections and that their stance should be treated with caution.

German Chancellor Angela Merkel, who is also facing elections next year, also warned the UK will not be granted full access to the single market unless it compromises on free movement of people.

But Mr Hollande’s comments appear to have spooked the markets, triggering the “flash crash”, which is likely to have been the result of a “rogue algorithm” rather than a “fat finger” accidental trade.

While the Pound quickly recovered, experts believe it will fall further, possibly to as low as $1.10 or parity against the euro.

Naeem Aslam, chief market analyst at ThinkMarkets, said: “What we had was insane..the move of this magnitude really tells you how low the currency can really go.”