Pound surges as Europe offers escape route from hard Brexit

The pound surged higher on Tuesday as traders seized on comments from a top European Court of Justice official that the UK could unilaterally change its mind on Brexit.

The ECJ’s advocate-general Manuel Campos Sanchez-Bordona told the court any potential decision by the British Government to U-turn on invoking Article 50 would be lawful. Advice from the advocate-general does not have the status of a ruling, but the full court follows his opinion in around 80% of cases. The final verdict is expected within weeks but the intervention electrified currency markets, pushing sterling up almost a cent against the dollar to $1.2830.

Sanchez-Bordona said Article 50 “allows the unilateral revocation of the notification of the intention to withdraw from the EU”.

Jo Maugham, one of the pro-Remain QCs who brought the case, said the opinion “puts the decision about our future back into the hands of our own elected representatives”. The European Commission has called for additional unanimous agreement of the remaining 27 members.

Currency analysts said the likely ruling “changed the dynamics of the tail-risks” around leaving the EU.

Nomura’s Jordan Rochester said: “For the last two years, [EU chief negotiator] Michel Barnier has said the clock is ticking. The market is taking it as a good thing as it reduces the chance of a cliff-edge Brexit if we can unilaterally reverse it.” But he added that it also “opens up a can of worms” if a new leadership wanted to attempt to renegotiate.

The intervention came a week before a critical vote on the divorce agreement. But former Bank of England governor, Lord King, today launched an astonishing broadside at his successor Mark Carney over the Bank’s controversial scenario forecasts, which set out a possible 10% fall in GDP after a disruptive no-deal Brexit.

King compared the Bank’s forecasts with the “flimsy and arbitrary” assumptions of Project Fear before the referendum and said they were not based on “plausible” scenarios. “It saddens me to see the Bank of England unnecessarily drawn into this project,” he added.

The Bank — understood to have been working on the scenarios for more than a year — published them on the orders of the Treasury Select Committee.

Investec’s economist Philip Shaw said: “It is very difficult when you are constructing scenarios how severe to make them. It is one of the pitfalls. I have a certain amount of sympathy with the Bank.”