Sterling sinks due to divorce concerns

LONDON — The British pound dived on Tuesday after German Chancellor Angela Merkel reportedly warned that a Brexit deal was "overwhelmingly unlikely", further stoking fears of a disorderly and costly departure from the EU.

Merkel told British Prime Minister Boris Johnson that a deal was doomed to fail unless London agreed to keep British-run Northern Ireland that borders EU-member Ireland in the bloc's customs union, a Downing Street source said.

The host of next week's European summit, EU Council president Donald Tusk, in turn accused British Prime Minister Boris Johnson of trying to shift blame for the failure of the Brexit talks.

"Markets are having to focus on the various potential outcomes which are now imminent," Interactive Investor analyst Rebecca O'Keeffe told AFP.

"A deal looks very unlikely unless the EU blinks first."

'Greater chance of no-deal' 

She added: "For many, the word of the PM is government policy, hence the global market is moving towards pricing in an ever greater chance of a no-deal." 

Losses were exacerbated by official data showing that British productivity tumbled at its fastest rate in five years in the second quarter of 2019.

Stock markets on both sides of the Atlantic, meanwhile, posted losses on growing investor doubts over chances of success in this week's China-US trade talks.

Losses for London stocks were limited thanks to the weak pound, which boosts multinationals earning in stronger currencies. 

Other European markets were nearly one per cent lower in the mid-afternoon, while on Wall Street the Dow Jones index was also down at the opening bell.

There had been a general feeling in recent weeks that a solution to the long-running US-China tariffs saga may be found, providing some much-needed support to equities in the face of worsening economic data.