Sterling continues to fluctuate near 90p against the euro as speculation mounts that Friday’s flash crash may be part of a fundamental shift in the state of the UK economy.

The British currency tumbled the most last week since the vote to leave the European Union in June, hitting three-year lows against the euro and 31-year lows against the dollar, heaping more pain on Irish exporters.

While sterling’s weakness has helped cushion the UK economy in the immediate aftermath of the referendum, the latest slide has also caused companies to downgrade profit forecasts and threatened to fan inflation.

Mike Ashley’s Sports Direct last week announced that losses on its currency hedge were forcing it to scrap the profit forecast issued just a month ago.

Disruptive impact

The disruptive impact from a sudden currency depreciation may be so large that it exceeds the economic benefits that accrue from higher exports, analysts at Commerzbank have warned.

For UK consumers already noticing the higher cost of foreign travel, the risk is that a weaker currency results in price rises at home, while faster inflation may make it less likely that the Bank of England will be able to support a slowing economy via lower interest rates or more asset purchases – increasing the risk of stagflation.

"The events of the past week probably provide a window into the sort of volatile economic environment the UK will face over at least the next 2½ years," said Rob Wood, an economist at Bank of America Merrill Lynch in London. "That environment is unlikely going to be good for growth," he added.