FINANCIAL analysts have warned that the pound could plunge towards parity with the US dollar if there was a no-deal Brexit.

The warning came as a no-deal showdown is expected in the House of Commons today after the UK Government was heavily defeated in the House of Lords by peers aiming to stop Britain crashing out of the EU without an agreement being forced through while Parliament is suspended.

A cross-party bid to block such a move was backed by 272 to 169, a majority of 103, after warnings that it would amount to a "constitutional outrage".

Today, MPs will decide on the move with all parties ordering a three-line whip. The vote could be on a knife-edge.

The peers' vote came amid fears that Boris Johnson could try to prorogue Parliament to force through a no-deal Brexit if he won the Tory leadership contest next week.

Critics of the unusual move by the Lords condemned it as a piece of "parliamentary chicanery".

Earlier, Stephen Barclay, the Brexit Secretary, upped the ante with Brussels, telling MPs that a no-deal Brexit was “under-priced”.

In a blatant attempt to pile pressure on the EU to do a snap deal under a new premiership, he pointed out the lack of parliamentary time to steer an agreement through Westminster by October 31.

Already, holidaymakers heading abroad are seeing the pound in their pocket worth less.

Sterling is trading at around 1.11 euros, which is its weakest level since December 2018. Against the US dollar, it is just 1.24, the worst rate for more than two years.

But the Morgan Stanley investment bank warned things could get worse if there were a no-deal outcome.

“The pound has come under intense selling pressure since Prime Minister May withdrew from her party leadership position, leaving markets with increased concern that the UK may be heading towards a harder Brexit. Should this scenario materialize, pound-dollar could fall into the $1.00-$1.10 range.”

Hubert de Barochez from Capital Economics noted: “Sterling could still fall a lot further in the event of no-deal as this outcome is far from being fully discounted.”

He added: “Even if a deal is reached, we doubt that sterling would do very well this year. This is because we expect appetite for risk to wane across the globe as the world economy slows, prompting the dollar to strengthen against most currencies, including sterling.

“The upshot is the near-term risks for the currency are still skewed to the downside. But there is a chance that the pound will rebound in 2020 or 2021, if inflation rises and the Bank of England tightens monetary policy as a result.”

Mr Barclay told MPs on the Commons Brexit Committee: "A no-deal is underpriced. It's still this Government's intention and both leadership candidates' intention to seek a deal and it's the will of many Members of Parliament for there to be a deal.

"But the question then will be: 'Is there a deal that is palatable to Parliament and if not, will Parliament vote to revoke or will we leave with no deal?'"

The Secretary of State acknowledged there was "confusion" about the risk of a no-deal Brexit.

"That is, in part, because people hear coming out of this building some people saying 'no deal is the legal default' and they hear of other people saying 'Parliament will take no deal off the table'."

Mr Barclay was quizzed about his allegedly stormy meeting with Michel Barnier, the EU’s chief negotiator, earlier this month.

Reports from Brussels suggested he told Mr Barnier that the deal was dead five times during a confrontational meeting.

But the minister told MPs there had been "misleading information" about the meeting, although he did set out that the Withdrawal Agreement stood no chance of making it through Parliament in its current form.

"In terms of the Withdrawal Agreement, what I said was that the House had rejected it three times, including the third time by a significant margin; that the European election results had further hardened attitudes across the House and that the text, unchanged, I did not envisage going through the House. I don't think that was a particularly controversial observation," he added.