The pound has fallen to a two-year low as the political landscape adds to uncertainty in an economy already under strain.

On Monday afternoon the pound was at US$1.1867 – its lowest level since March 2020. Just before 5pm, it had strengthened slightly to US$1.19.

It comes days after Boris Johnson’s resignation as prime minister and as the race to replace him begins.

The situation is deepening the economic uncertainty, with high inflation, the risk of a recession, Brexit, and cost of living pressures already creating pressure.

At the same, this week’s important US inflation data sent the dollar surging amid a diminishing appetite for risk.

Versus the euro, the pound was down slightly to 84.80p.

Rabobank strategists said it is not yet known whether Mr Johnson’s resignation will be enough to provide economic “coherence”.

They said in a note: “Although pound investors will be hoping for a government less distracted by scandal and more focussed on providing coherence around the post Brexit economy, the jury is still out.

“The pound may suffer a lack of fresh direction until the new prime minister is in place.”

This week will see the UK’s latest monthly GDP figures released and these are expected to show no growth in May, reinforcing fears that second quarter data will show an economic contraction.