THE value of sterling has fallen sharply amid growing fears of a no-deal Brexit.

The pound fell below $1.29 on Wednesday, its weakest level for a year.

Sterling has now lost 10 per cent of its value against the dollar in four months.

The pound also fell to its lowest level against the euro in nine months, to ?€1.11, and was also down against the yen and Swiss franc.

Although good for exporters, the fall increases costs for holidaymakers exchanging currency and could add to inflation in the shops, as the cost of imported goods are pushed up.

Since the beginning of the month, the pound has fallen 1.7 per cent against the dollar and 0.8 per cent against the euro.

The sell-off follows a series of statements from UK government ministers - designed to focus the minds of EU leaders in Brexit negotiations - that a no deal is increasingly likely.

Foreign Secretary Jeremy Hunt, Brexit Secretary Dominic Raab both warned the UK could be heading for a no deal by accident, if the EU rejects Theresa May’s Chequers deal.

Bank of England governor Mark Carney also said the chances of crashing out the EU without a deal on trade and customs, or a transition period, were “uncomfortably high”.

On Sunday, International trade Secretary Dr Liam Fox said, despite forecasting a year ago a deal would be “the easiest in history”, the odds of a no deal were 60-40.

Asked in Edinburgh on Tuesday if Dr Fox was correct, Theresa May did not deny it.

Instead she said: “We’re working to get a good deal.”

The movements in sterling suggest it is behaving as a ‘political currency’, easily buffeted by political events and statements.

The falls are despite the Bank of England raising interest rates last week to 0.75 per cent, a nine year high, something which would ordinarily increase the value of sterling.

Some analysts are interpreting that as a pre-emptive move by the Bank in case it needs to lower rates again to cope with the economic shock of a no deal Brexit.

Jane Foley, foreign exchange strategist at Rabobank, said: “We have learnt since the Bank of England interest rate hike that this is all about politics now.”

She said a no deal Brexit could see the pound lose another 10 per cent in value, reaching parity with the euro, triggering “another round of damaging inflationary pressures in the UK".

Thanos Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch, also said this week that no deal could see a 10 per cent drop in sterling’s value.

“If you get a deal, any deal, sterling can be up by 10 percent. I don't think any other currency can have this kind of moves in the next few months," he told CNBC.