The pound yesterday hit a fresh 31-year low against the dollar as worries over the UK's exit from the European Union continued to rattle financial markets.

At one point, it dropped to $1.2798, its lowest level since June 1985, before rebounding to above $1.29.

Analysts blamed warnings from the Bank of England that Brexit risks were "crystallising" amid fears about the UK commercial property market.

The pound has dropped 14% since hitting $1.50 ahead of the referendum result.

"Pessimistic predictions for sterling are coming true," said Andrew Edwards, chief executive of ETX Capital. "The pound is the chief proxy for the post-Brexit mood in the markets."

Stock markets have also fallen after last week's relief rally, with the FTSE 100index down 1.6% in afternoon trading at 6,441.99.

Domestic stocks such as supermarkets, housebuilders and banks have fallen sharply, and the FTSE 250 - which contains more UK-focused companies - was down 1.3% at 15,526.02.

Tesco and Morrisons were two of the biggest losers, with their shares dropping 9% and 7% respectively after analysts warned of a potential price war among supermarkets.

Laith Khalaf, an analyst at Hargreaves Lansdown, said further discounting would squeeze supermarkets' margins at a time when the falling pound is set to make food imports more expensive.

Property-related stocks have been especially hard hit this week after three fund managers decided to stop investors withdrawing money from their UK property funds. Shares in Barratt Developments and Taylor Wimpey fell by a further 4%,

"The suspension of commercial property fund redemptions by a number of big players has precipitated a broader sell-off in the UK property sector including housebuilders and other asset managers," said Michael Hewson of CMC Markets.

European stock markets fell more sharply, with the Paris Cac, Frankfurt Dax andMadrid Ibex indexes all dropping by more than 2%.

Investors are showing some "buyers' remorse" after last week's stock market rebound and are focusing on "weak spots of the European economy", Mr Hewson said.

Europe's financial sector, in particular, is under pressure after the European Central Bank warned that Italian lender Banca Monte dei Paschi di Siena, the world's oldest bank, had dangerously high levels of bad debt.

Shares in Deutsche Bank earlier skidded to a record low of €11.40 and Credit Suisse hit its lowest level since 1989.

And that's just on the financial side. On the political side, Britain has been left politically headless and without leadership after Cameron resigned, Corbyn has been all but booted out, Brexit's Farage moved out and there is no end in view.

It is now more than clear that the Brexit side was not really prepared to face the aftermath of the vote. During the campaign, the Brexit side had claimed that warnings by the Remain side were just scaremongering. Now it is getting every day clearer the warnings were true, all too true.

It has come to a point that the most reputable of the media that had plugged Brexit, such as the Sunday Times, came up with a four page spread telling readers about ideas how the British economy can be helped to grow as it acquires greater freedom from the EU restrictions.

The ideas are quite simple - trade agreements with third countries, infrastructural works, better training, digital upgrades.

One is left asking two basic questions:

-         Many of these ideas are quite compatible with EU membership and in fact form part of the EU growth plans as well. So why exit from the EU when these can be done inside the EU?

-         Why exactly has the UK left the EU? The most basic reason given, and the one that clinched the support, was because of immigration. Not immigration from third countries but immigration from EU countries. These ideas for growth do not address this issue. On the contrary, it may be argued that there are entire sections of the British economy that are imperilled if the EU citizens are sent away.