Sterling hits 31-year low

British 10-year government borrowing costs sank below 1 percent on Monday for the first time ever and sterling tumbled to a fresh 31-year low against the dollar as investors bet Britain's vote to leave the EU will trigger a Bank of England rate cut.

Billions of pounds were wiped off the value of British financial stocks, and analysts at several banks slashed their forecasts for the pound in the wake of Britain's vote on Thursday to leave the European Union.

Finance minister George Osborne said on Monday the economy would have to face up to "an adjustment" as it dealt with the fallout of 'Brexit'. Against a backdrop of sliding share prices and an uncertain economic outlook, investors sold sterling and sought the safety of government bonds.

"You'd have expected there to be some psychological barrier to gilts breaking through 1 percent, but not today," said Luke Hickmore, senior investment manager at Aberdeen Asset Management.

"Gilt yields just kept dropping. It's no wonder. There's no political leadership in the UK right when markets need the reassurance of direction," he said.

UK money and bond markets moved to price in lower interest rates, with swaps rates now almost fully implying a 0.25 percentage-point cut from the BoE by the end of the year.

The yield on 10-year UK government bonds tumbled to a new low of 0.934 percent, and two-year yields fell more than 10 basis points to a four-year low of 0.129 percent.

Sterling shed more than 3 percent against the dollar to a fresh 31-year low of $1.3221, and the euro rose more than 2 percent to 83.25 pence, its highest in more than two years.

The pound's fall on Friday was the largest in modern history, reaching more than 10 percent against the dollar at one stage, and was also the largest decline since at least the 1970s on a trade-weighted basis.

RBC Capital Markets now expect the BoE to cut rates by 25 basis points next month to 0.25 percent, and again in August down to 0.1 percent along with an additional 50 billion pounds of quantitative easing bond-buying stimulus. Several banks, including Goldman Sachs and Bank of America Merrill Lynch, cut their sterling forecasts too.

"With the Leave vote creating greater uncertainty over the outlook for the economy and BoE policies biased towards further easing/renewed QE, sterling is vulnerable to further near-term selling pressure," said Athanasios Vamvakidis, FX strategist at BAML.

"A push below $1.30 cannot be ruled out," he added.