The pound has enjoyed its best two-day rally in ten months as investors and business groups welcome the vote by MPs to try and stop a no-deal Brexit.
The CBI described the cross-party alliance’s victory over Boris Johnson as a “small chink of light for business” but warned that uncertainty would continue to hold back investment.
Carolyn Fairbairn, director-general of the lobby group, called for a “spirit of compromise” in Westminster to avoid an economic crisis.
Her reaction came as the pound added to gains seen on Wednesday as the House of Commons backed a law to try to avoid a no-deal scenario, reaching its highest level since the end of July.
Ms Fairbairn said: “From the political turmoil a small chink of light for business – most firms back an extension over the known harm of no-deal.
“Yet, with an election looming, many remain deeply concerned about the ongoing impact of uncertainty on the economy.
“The Brexit clock may appear to stop from time to time, but for firms it keeps ticking.
“Until a deal is agreed, companies will continue to divert billions of pounds from productive investment to no-deal preparations, and international investors will continue to question if the UK is a stable, open place to do business.
“Whatever happens next, any delay must have purpose and be used to rediscover a spirit of compromise in Westminster to stop a political crisis from becoming an economic one.”
Business groups and economists have been warning that crashing out of the EU without a deal would have a severe impact on the UK economy, with trade disruption and rising food bills threatened.
The Bank of England this week predicted that GDP would fall by 5.5% in a worst-case scenario – though this was better than the previously pencilled-in 8% fall, thanks to improved planning by the government, ministers and the financial sector.
The pound has been plagued by uncertainty ever since the EU referendum three years ago and pressure on the currency has intensified in recent weeks as the prospect of a no-deal scenario grew.
Earlier this week it dipped below $ 1.20 against the US dollar to reach levels not seen since a “flash crash” in October 2016.
But on Wednesday the pound recovered to more than $ 1.22 and it extended those gains on Thursday – up more than half a cent at over $ 1.23 – its best two-day performance this year.
Sterling was also higher against the euro, at more than €1.11 also its highest level since the end of July.
The latest turbulence in Westminster comes as business surveys indicate the UK could be in recession – with Brexit uncertainty and a global slowdown accentuated by the US-China trade war among the key factors in the downturn.
On Thursday, manufacturers’ organisation Make UK warned that firms were “firmly in a nosedive as the perfect storm of Brexit uncertainty, slowdown in major markets and trade wars takes its toll”.