SENIOR Scottish economists have warned of difficult and uncertain times ahead, after sterling tumbled to a 31-year low against the dollar amid mounting fears over Brexit.

The pound fell as low as $1.2715 during trading yesterday, spooked by growing worries that the Conservative Government wants to pursue a “hard Brexit”. Sterling has been reeling since Prime Minister Theresa May pledged on Sunday to trigger by next March the start of the formal two-year process for the UK to leave the European Union.

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Sterling yesterday tumbled through a previous 31-year low of just below $1.28 recorded in early July, in the immediate aftermath of the June 23 Brexit vote, to trade at its worst levels since June 1985. The pound also sank to fresh three-year lows against the euro, with the single currency hitting 88p.

Jeremy Peat, visiting professor at Strathclyde University’s International Public Policy Institute, said: “It is a very difficult period. The uncertainties are not getting less, and the risks of a significant slowdown are still there.”

Professor Graeme Roy, director of the Fraser of Allander Institute, said of the pound’s fall: “The one thing we have to remember is what is driving the fall in the exchange rate. This isn’t because we have suddenly become more competitive. It is because markets and investors see the UK as being a less attractive place with Brexit coming down the line. That is what is driving down the exchange rate, and uncertainty over what the trade deals will mean.”

He added: “The reason the exchange rate is falling so much is people’s expectations about the long-term outlook [are] now a lot more uncertain, so naturally investors look for other areas to go.”

A Scottish Government spokeswoman said: “The fall in sterling over recent days is deeply concerning and reflects the UK Government’s decision to pursue a ‘hard Brexit’ – a move which threatens jobs, investment and long-term economic prosperity.”

Chancellor Philip Hammond on Monday warned there would be “turbulence” during the negotiating period, drawing an analogy with a “rollercoaster”.

Mulling the reasons for the pound’s fall to a 31-year low yesterday, Mr Roy said: “The fact it has been the talk round about the timescales and also the relative priorities, and the chancellor making clear as we negotiate through this it is going to be a demanding time period – [in] that overall context, it is unsurprising we see the pound responding in that way.”

Commenting on what was driving the pound lower, Mr Peat said: “I think…it is the increasing expectation that there will be a hard Brexit, with difficulties over continuing access to the single market in some form or another because the view that seems to be coming out from the Tory party conference is they are unlikely to want to compromise.”

Mr Peat highlighted signs of a lack of willingness to compromise on issues likely to be crucial to continued free access to the single market, such as immigration and open labour markets, the making of financial contributions to Europe, and following some EU regulations.

He added that, unless there was “some give there”, he did not see how you could expect a deal that was positive for UK companies or the financial sector.

Mr Peat declared: “They are putting at risk our access to the single market.”

The International Monetary Fund yesterday cut its forecast of UK growth next year further, to just 1.1 per cent, and emphasised this projection was “based on the assumptions of smooth post-Brexit negotiations and a limited increase in economic barriers”.

The IMF had in July, in the immediate wake of the Brexit vote, cut its forecast of UK growth in 2017 from 2. 2 per cent to 1.3 per cent. It yesterday edged its forecast of UK growth in 2016 up to 1.8 per cent, having cut it from 1.9 per cent to 1.7 per cent in July. The UK economy grew by a below-trend 2.2 per cent in 2015.

Mr Peat noted Scottish exporters should receive a boost from the weak pound.

However, he warned: “There is also evidence of pressures from increasing costs and those pressures will only increase as sterling depreciation continues, and that will make life difficult for the Bank of England.

“If we get inflation rising, they will have difficult decisions to make on interest rates some time during 2017.”

The Bank cut UK base rates to a record low of 0.25 per cent in August.

Mr Roy noted Scottish exporters and the North Sea, given oil was priced in dollars, should receive a boost from the weak pound.

But he cited a survey last week from Royal Bank of Scotland, conducted by Fraser of Allander, signalling Scottish companies’ overall exports continued to fall in the three months to August in spite of the pound’s tumble following the referendum.