Pound edges higher after Brexit chaos caused biggest sell-off since flash crash of October 2016 but stock market falls back

• e-mail

The pound has steadied after enduring its biggest one-day decline for more than two years amid yesterday's Brexit deal chaos.

Stocks on the London market lost their poise after lunchtime, with investors braced for more turbulence amid speculation Prime MinisterTheresa May may face a confidence vote over her leadership.

Sterling edged 0.2 per cent higher to just below $1.28, having tumbled on Thursday after a raft of key ministerial resignations – including Brexit Secretary Dominic Raab – sparked the steepest sell-off since the October flash crash in 2016.

The pound has steadied after enduring its biggest one-day decline for more than two years amid Thursday´s Brexit deal chaos (PA)

The pound also rose 0.2 per cent to just under 1.13 euros and was higher against most major currencies. The Footsie lifted 62 points to 6,976 in afternoon trading.

Financial and banking stocks and housebuilders remained under pressure as firms exposed to the UK economy continued to be hit on fears over the impact of a no-deal on growth.

Connor Campbell, financial analyst at Spreadex, said: 'The pound is a bit like Theresa May at the moment – seriously bruised by the fallout of the Brexit draft deal, shaken by a series of high-profile resignations but, for the time being (and however misguidedly), emboldened by a sense of resilience.'

Michael Hewson, chief market analyst at CMC Markets, said a leadership challenge for Mrs May was unlikely to solve the mounting Brexit deal woes.

He said: 'Any new leader will face the very same problems that the current incumbent is now facing, which means that for all the sound and fury that is currently buffeting currency markets, the ultimate calculus remains the same in that there is no majority in the House of Commons for a no-deal Brexit.

'It was fears around a possible election, a no-deal Brexit and a Corbyn government that saw UK banks and housebuilders fall sharply yesterday, though the rise in UK gilt prices suggests that the bond markets think this an unlikely scenario for now.'

Among stocks on the FTSE 100 Index, Royal Bank of Scotland fell another 3 per cent, while peers Lloyds Banking Group and Barclays dropped 2 per cent and 1 per cent respectively.

Britain's biggest banks were summoned for a call with City regulators on Thursday over market turbulence caused by the Brexit deal turmoil.

It is understood major UK banks were asked for their feedback on the market reaction, with the Financial Conduct Authority saying it was having 'regular contact' with firms and would 'continue to engage with them'.

Housebuilders were also among the worst affected stocks on Thursday and continued to suffer falls. Charles Church builder Persimmon and Barratt Developments fell another 2 per cent on Friday.