LONDON – Uncertainty over Britain's future in the European Union sent the pound plunging Monday, as Prime Minister David Cameron tried to shore up support for remaining in the bloc when the U.K. holds a referendum in June.
The pound fell 2.1 percent to $1.4106 — after touching a seven-year low of 1.4058 — and also sagged 0.5 percent to 1.28 euros, as bookmakers shortened the odds on a vote to leave — though betting markets still favor a "remain" victory.
UBS Wealth Management said Monday it put the probability of a British EU exit — known as "Brexit" — at 30 percent.
Simon Smith, chief economist at FxPro, said the next four months "won't be a fun time" for the pound, which has weakened in recent months.
"It's more the uncertainty that will weigh on the currency, rather than investors taking a view on the outcome and the implications for the economy, which are hard to argue either way," he said.
Many big businesses have warned that leaving the EU — with its open internal market of 500 million people — would hammer the British economy. But London Mayor Boris Johnson, a high-profile supporter of an "out" vote, said fears of economic catastrophe were "wildly exaggerated."
He likened he warnings to those who had issued apocalyptic warnings that if Britain did not join the euro single currency, the City of London financial district would suffer and "great mutant rats would gnaw the faces of the last bankers."
However, Johnson suggested his goal is to vote to leave, then reopen negotiations on terms of remaining in the EU.
"There is only one way to get the change we need — and that is to vote to go; because all EU history shows that they only really listen to a population when it says 'no,'" he wrote in the Daily Telegraph.
The rhetorical stakes shot sky-high as politicians began a four-month battle to sway British voters ahead of the June 23 referendum, with the opposing sides battling over whether EU membership made Britain more or less safe from terrorist attacks.
Former Conservative leader Iain Duncan Smith said Sunday that the EU's "open border," and the inflow of millions of migrants from the Middle East and Africa, made it more likely terrorists could slip into the UK — though Britain is not part of the EU's borderless Schengen zone.
But Defense Secretary Michael Fallon argued that EU membership made the U.K. safer.
"It is through the EU that you exchange criminal records and passenger records and work together on counter-terrorism," Fallon told the BBC Monday.
"We need the collective weight of the EU when you are dealing with Russian aggression or terrorism. You need to be part of these big partnerships."
He was echoed by Rob Wainwright, director of the European police cooperation agency Europol, who said that if London turns its back on the EU and the police cooperation capabilities it offers, "it would make the U.K.'s job harder, I think, to protect the citizens from terrorism and organized crime."
Cameron was due to make his case in the House of Commons Monday, arguing that a deal he struck Friday with 27 other EU leaders gives Britain "special status," exempting the U.K. from ever-closer political bonds within the bloc and protecting the rights of the pound against the euro currency used by 19 EU countries.
Other European leaders have sometimes expressed annoyance at Britain's demands, but want the U.K., with its economic and diplomatic clout, to remain in the bloc.
Italian Prime Minister Matteo Renzi said Monday that he hoped "good sense will prevail" in the British referendum.
Cameron's governing Conservative Party is deeply split on the issue, with as many as half of Tory legislators — and at least six of the 23 members of Cameron's Cabinet — in favor of leaving the EU.
Associated Press writers Michael Corder in The Hague and Frances D'Emilio in Rome contributed.