Sterling fell below $1.28 for the first time since late June on Wednesday while deepening its recent losses against the euro as gloom over Britain's economic prospects and the Brexit process encouraged investors to push the pound lower.

The government is striving to move forward the formal discussions on leaving the European Union with a series of position papers that have outlined potential compromises over some of the issues likely to block progress this year.

Analysts again praised signs from another paper on Wednesday that Prime Minister Theresa May would give ground on the influence of EU courts, but markets have so far been unimpressed. In trade-weighted terms, the pound is down 3 per cent since the start of August.

“We believe that some cautiousness may be warranted, however, given that the latest bout of GBP-weakness has brought it into undervalued territory against both EUR and USD. On the day,” Credit Agricole analysts wrote in a note to clients.

“(But the euro has) hit yet another multi-month high with the recent price action suggesting that investors are still very comfortable being long the cross despite its lofty levels.”

By 0805 GMT sterling was trading at $1.2803 after touching a low of $1.2799 in early trades.

Against the euro, it fell a third of a per cent to 92.05 pence, outside of a short-lived “flash crash” in October, its weakest in eight years.

“We think its too early in the cycle for Brexit details to have a dramatic effect on the pound,” said Bank of Montreal strategist Stephen Gallo.

“But there hasn't been any real progress from Brexit negotiators on shifting the discussions from exit conditions over to trade.”