British prime minister David Cameron will try to sell his case for Britain remaining in the European Union to parliament on Monday, facing hostility from his own MPs and an exit campaign energised by the backing of London mayor Boris Johnson.
Mr Johnson, one of Britain's most popular politicians, announced on Sunday he supported leaving the union, dealing a blow to Mr Cameron who struck a deal to reform Britain's relations with the EU last week.
The mayor’s announcement, widely regarded as increasing the chance of a British EU exit, saw sterling on course for its biggest one-day loss against the dollar in 11 months while British bond prices also fell.
"I'm delighted that he's come out for leaving the European Union," former finance minister and chairman of the Vote Leave campaign Nigel Lawson told BBC radio. "He is a superb campaigner so he's a great asset."
While Mr Cameron's most senior Cabinet colleagues have stuck with him, five others have said they would campaign for a British exit, highlighting the deep divide in Cameron's Conservative Party over Europe, dating back to the days of Margaret Thatcher in the 1980s.
However, Mr Johnson’s intervention is seen as significant, giving the “out” campaign a de facto figure head. Betting odds of a British exit rose to a 33 percent chance from about 29 per cent after his announcement, according to bookmakers.
Mr Johnson (51) a political showman whose eccentric persona masks a fierce ambition to succeed Mr Cameron, said on Sunday he did not want to go against Mr Cameron but believed the EU project was in danger of getting out of democratic control.
On Monday, Mr Johnson declined to elaborate further, saying he was focusing on his last budget as London mayor, a post he has held since 2008.
“There will be plenty of time to talk about Europe and the great future that Britain can have outside the European Union in the next few weeks,” Mr Johnson, who is also a Conservative member of parliament, told reporters.
Sterling was on course for its biggest one day loss in 11 months, falling to $1.4175 after the start of European trade, down 1.5 per cent on the day. The pound also fell against the euro on concern that Britain would quit the bloc it joined in 1973.
The cost of hedging against sharp weakness in the sterling exchange rate shot up to its highest in more than four years.
The six-month implied volatility in sterling/dollar - a gauge of how sharp investors believe currency moves will be - rose to 12.2 per cent, its highest since late 2011, according to Reuters charts. The contract captures the date of the referendum, scheduled for June 23rd.
Mr Cameron is due to make a statement to MPs about his EU negotiations later on Monday when the scale of divisions in the Conservative Party over the EU should become clear.
What role Mr Johnson will play in the leave campaign is not known as he said he would not take part in debates against members of his own party.
That has led some commentators to question whether his stance is a calculated gamble designed to attract widespread eurosceptic support among Conservatives in a future leadership bid to succeed Mr Cameron, who has said he will step down before the next election in 2020.