Pound LIVE: GBP Sterling GAINS against euro as May declares Brexit Britain WILL thrive

Mrs May’s speech saw the pound rise against the euro to €1.126, a boost from the €1.123 seen this morning.

Theresa May said she wanted a good Brexit agreement but “Britain isn’t afraid to leave with no deal if we had to”.

She acknowledged a no-deal Brexit would be a “bad outcome for the UK and the EU”.

“It would be tough at first, but the resilience and ingenuity of the British people would see us through,” she said.

Defending her Chequers plan, she said it would allow “frictionless trade in goods” while also protecting “our precious Union”, with no change at the border between Northern Ireland and Ireland.

WEDNESDAY 3RD OCTOBER, 9:32AM:

The pound had dropped against the euro earlier off the back of reports suggesting Italy would backtrack on plans for a huge deficit budget next year.

The Italian government rattled markets and sparked fury from EU officials after announcing proposals to set out a deficit goal of 2.4 percent of GDP for the next three years – three times the previous administration’s target.

According to Italian newspaper Corriere della sera, Rome now aims to gradually reduce its targeted gap to 2.2 percent in 2020, and 2 percent in 2021.

The reports saw the pound fall against the euro to €1.123, according to Bloomberg, after seeing highs of €1.127 yesterday.

Italian Prime Minister Giuseppe Conte will meet ministers over the budget this morning.

Koji Fukaya, president at FPG Securities in Tokyo, said: “The euro was lifted, as the latest report on Italy’s budget appears to have prompted a bit of short covering following its recent descent on budget woes.

Koji Fukaya, president at FPG Securities in Tokyo, said: “The euro was lifted, as the latest report on Italy’s budget appears to have prompted a bit of short covering following its recent descent on budget woes.

“The market was relieved amid signs that perhaps Italy was willing to play by the rules.

“The Italian budget could recede as a market theme going forward, but that won’t mean the euro can regain its stride, with the dollar enjoying such an yield advantage.”

Italian bond yields tumbled on the reports, falling six to 19 basis points across the board, according to Reuters.

The 10-year Italian government bond yield fell 10 bps to 3.33 percent.

The initial budget announcement last week from the Italy’s ruling parties – the anti-establishment 5-Star Movement and the right-wing League – not only sent shivers across markets, but also stern warns from Jean-Claude Juncker.

He said: “Italy is distancing itself from the budgetary targets we have jointly agreed at EU level.

“I would not wish that, after having really been able to cope with the Greek crisis, we’ll end up in the same crisis in Italy. One such crisis has been enough.

“If Italy wants further special treatment, that would mean the end of the euro. So you have to be very strict.”

Mario Centeno, the Portuguese finance minister, said in Luxembourg: “Recent announcements by the Italian government have raised concerns about its budgetary course.”

The reported backtrack comes just days after Deputy Prime Minister Luigi Di Maio, of the Five Star Movement, took aim at Brussels as he vowed his nation will not change its budget deficit targets.

Mr Di Maio said: ”We are not turning back from that 2.4 percent target, that has to be clear… We will not backtrack by a millimeter.”

Italian economy minister Giovanni Tria was forced to defend the deficit budget over the weekend as he vowed the debt level will be brought under control.

In an attempt to downplay fears, Mr Tria declared economic growth in Italy will be boosted by investments over the next two years.

Mr Tria, an economist who belongs to neither ruling party, said reassurance from the Commission and markets will come once they have a clear view of next year’s budget.

This is due to be presented by October 20.

He told Il Sole 24 Ore: ”My hope is that by explaining the budget that we are preparing and the tools we plan to use to reach our main objective, which is growth, that the fears will cease.”

Mr Tria, who had wanted a figure closer to 1.6 percent, found himself overruled on the budget plan by coalition partners Matteo Salvini, of Lega, and Mr Di Maio.

He has been forced to deny that he will quit after following the humiliating climbdown.

The pound has also found itself under pressure from slowing output in the UK construction sector, after September’s services PMI revealed a shift from 54.3 points to 53.9.

The UK’s PMI data is compiled by analysts at IHS Markit.

Jacob Deppe, Head of Trading at the online trading platform, Infinox, said: “September’s surprise jump in inflation was no fluke – and on this evidence more inflationary pressure is heading our way.

“With oil prices at a four-year high, input costs for Britain’s dominant services sector are steadily ratcheting up; and it’s a matter of when, not if, these are passed on to consumers.

“With CPI already at 2.7 percent – well over the Bank of England’s 2 percent target – talk of another interest rate rise could soon move from the fanciful to the possible.

“While the Bank’s rate-setting grandees will surely reserve judgment until the full impact of August’s modest rate hike is felt, monetary policy hawks will be emboldened by the relatively rosy picture painted by this PMI report.

“With services accounting for four-fifths of the UK economy, such solid output and new orders numbers from the sector may reassure the Bank that UK Plc has just enough momentum to withstand a further small rate rise in early 2019.

“Such plans remain nebulous, but they are at least back on the table – even if the Brexit elephant in the room reserves the right to trample the whole thing into dust.

“Nevertheless the possibility has been enough to send sterling creeping higher against both the Euro and the Dollar.”