The British pound has fallen amid market worries for PM David Cameron's ability to keep his Conservative party together, and Britain within the EU. A key minister's resignation over the new budget has opened up rifts.
With just over three months to go before UK voters take part in a referendum on European Union membership, divisions in the ruling Conservative Party have upset the value of the currency, and changed the outlook for the party's next leadership.
The resignation of euroskeptic Work and Pensions Secretary Iain Duncan Smith on Friday night heightened worries over divisions in Prime Minister David Cameron's government ahead of the June 23 referendum.
The prime minister's spokeswoman said on Monday that Cameron would no longer pursue cuts to state disability benefits, the issue on which Duncan Smith based his resignation.
For his part, Duncan Smith denied speculation that his resignation was triggered by his position on Europe. He has called for Britain to leave the EU, a stance which pits him against Cameron and his finance minister, Chancellor George Osborne, but alongside more than 100 members of parliament who back Britain leaving the bloc.
On Monday, the UK currency fell 0.6 percent to $1.4393. Currency manager Richard Benson at Millenium Global in London commented: "Sterling does not normally react strongly to UK politics so this is probably due to Brexit," he said, adding: "The referendum is just making people focus on issues like this a lot more."
Kit Jukckes, strategist at French bank Societe Generale, said: "Brexit continues to dominate conversations, and the most alarming comment I've heard so far was from a business student at a talk I gave last week: 'I'd quite like the UK to leave the EU, just to see what happened.'"
The prime minister made a statement on Monday in the House of Commons on recent talks in Brussels, during which he gave his backing to Osborne, who has been seen as a frontrunner to succeed him as head of the Conservative Party. However, the Murdoch-owned Times front page headline on Monday read: "Cameron: I blame Osborne."
Osborne was not in the House of Commons on Monday, leaving a junior minister to take questions on his budget. Osborne was criticised in 2012 for sending junior minister Chloe Smith to be interviewed for a television current affairs programme to defend that year's budget, which also faced major criticism.
There has been speculation that Osborne will be forced to resign, with bookmakers on Monday offering odds of two to one (winners would get two back for every one staked, plus their stake) on him being replaced as finance minister this year.
Cameron said ahead of the last election he would not stand for a third term in office. He and Osborne, along with London Mayor Boris Johnson (in photo with Cameron) have all taken the same educational and political path since they were students. All old boys from the UK's most famous private school, Eaton College, they were also all members of the private Bullingdon students dining club when they attended Oxford University.
Unusually, Johnson, who recently came out in favor of the UK leaving the EU, avoided saying anything about Duncan Smith's departure over the weekend. He was scheduled to be interviewed on television, later on Monday night.
jm/msh (Reuters, AFP)