The U.K. faces possible tariffs on trade with the EU unless a deal is reached, Posen noted, adding that there were three key reasons why sterling would decline.
He said: “Inherently, you combine that with the other imbalances in the U.K. — the growth of consumer credit, the still large government budgets deficits and the imbalance in trade that was there even before Brexit.”
Sterling came under further pressure on Monday, dropping 0.9 percent to $1.3070 in the morning after a newspaper report stated that 40 members of parliament had agreed to sign a letter of no confidence in May, casting her leadership into further doubt.
On Tuesday, sterling was trading at $1.3090 and fell to an almost three-week low against the euro, at 89.525 pence, following the latest U.K. inflation data that was slightly weaker than expected, at an annual rate of 3 percent in October rather than the 3.1 percent forecast by a Reuters poll.
Posen said that politics and uncertainty would continue to be blamed for sterling’s weakness but, actually, the “fundamentals are down.”
