CITY regulators have summoned the heads of Britain’s biggest banks over market turbulence after government resignations over Brexit sent the pound and stocks into freefall.

According to news agency Reuters, Bank of England governor Mark Carney personally ordered the call to be held between regulators and lenders.

It is understood the UK banks were asked for their feedback on the market reaction to the shock resignation of Brexit Secretary Dominic Raab, which was followed soon afterwards by Work and Pensions Secretary Esther McVey.

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A spokesman for the Financial Conduct Authority said: “As you would expect, in this type of situation, we have regular contact with firms and will continue to engage with them.”

The pound fell sharply against most major currencies.

It was down 1.5% to $1.28 and also saw a 1.5% fall to €1.13 as Theresa May’s draft Brexit deal was thrown into chaos.

Its fall came after a volatile week for the pound following its severe buffeting by developments on the Brexit deal.

Stocks which have been exposed to the UK economy dived into the red, with housebuilders and banks among the worst affected.

Experts said sterling would remain under pressure as May now fights to save not only her Brexit deal but also her position.

The National:

James Hughes, chief market analyst at Axi Trader, said: “Sterling previously moved on clarity rather than positive and negative headlines.

“This has now changed and it seems sterling is now a barometer of the PM’s ability to hold onto her job.

“If the discontent and resignations continue then the pound will remain under pressure.”

David Cheetham, the chief market analyst at online trading group XTB, added that the currency reaction was “reminiscent of the Chequers deal in the summer where initial support from the Cabinet has proved short-lived for Theresa May”.

Foreign exchange experts at ING said it might not be over, and predicted that the pound could fall another 3% to 4% “unless the threat of a leadership challenge is quashed or there are clearer signs that the Withdrawal Agreement can garner more support in Parliament”.

On the FTSE 100 Index, Taylor Wimpey and Charles Church owner Persimmon were the biggest casualties of the Brexit chaos, both suffering 8% falls.

Taxpayer-owned lender Royal Bank of Scotland (RBS) led the falls in the banking sector, dropping 6%, with Lloyds Banking Group (LBG) also falling 5% and Barclays 4%.

Retailers, whose fortunes are also seen as linked to the health of the UK economy, were likewise deep in the red.

Shares in high street bellwethers Marks & Spencer and Next both fell 5%.

These falls were offset by share gains for global firms – such as mining groups, which benefit when the pound drops because their money is made overseas. The wider blue chip share index edged 12.4 points higher to 7046.2.

Laith Khalaf at Hargreaves Lansdown said: “The market has taken a big red pen to stocks which are heavily exposed to the UK economy like the banks, retailers and housebuilders.

“These sectors were already under pressure, but the potential for an orderly Brexit to unravel in the next few days is causing further distress to be manifested in share prices.”