EU flags flutter on the day of Britain's newly elected prime minister Boris Johnson's debut in the House of Commons, outside the Houses of Parliament in central London on July 25, 2019. - Britain's new Prime Minister Boris Johnson on Thursday called the current Brexit deal negotiated with the EU "unacceptable" and set preparations for leaving the bloc without an agreement as a "top priority" for the government. (Photo by Niklas HALLE'N / AFP)        (Photo credit should read NIKLAS HALLE'N/AFP/Getty Images)
NIKLAS HALLE'N/AFP/AFP/Getty Images
EU flags flutter on the day of Britain's newly elected prime minister Boris Johnson's debut in the House of Commons, outside the Houses of Parliament in central London on July 25, 2019. - Britain's new Prime Minister Boris Johnson on Thursday called the current Brexit deal negotiated with the EU "unacceptable" and set preparations for leaving the bloc without an agreement as a "top priority" for the government. (Photo by Niklas HALLE'N / AFP) (Photo credit should read NIKLAS HALLE'N/AFP/Getty Images)
Now playing
00:55
Pound drops as Brexit uncertainty swirls in UK
A Brexit supporter wears the Union Jack colors on his face at Parliament Square in Westminster, London, Friday, March 29, 2019. Pro-Brexit demonstrators were gathering in central London on the day that Britain was originally scheduled to leave the European Union. British lawmakers will vote Friday on what Prime Minister Theresa May's government described as the "last chance to vote for Brexit." (AP Photo/ Frank Augstein)
Frank Augstein/AP
A Brexit supporter wears the Union Jack colors on his face at Parliament Square in Westminster, London, Friday, March 29, 2019. Pro-Brexit demonstrators were gathering in central London on the day that Britain was originally scheduled to leave the European Union. British lawmakers will vote Friday on what Prime Minister Theresa May's government described as the "last chance to vote for Brexit." (AP Photo/ Frank Augstein)
Now playing
01:12
What happens if there's a no-deal Brexit
Now playing
03:04
Brexit could create costly border delays
LONDON, ENGLAND - JULY 23: Newly elected British Prime Minister Boris Johnson speaks during the Conservative Leadership announcement at the QEII Centre on July 23, 2019 in London, England. After a month of hustings, campaigning and televised debates the members of the UK's Conservative and Unionist Party have voted for Boris Johnson to be their new leader and the country's new Prime Minister, replacing Theresa May. (Photo by Jeff J Mitchell/Getty Images)
Jeff J Mitchell/Getty Images
LONDON, ENGLAND - JULY 23: Newly elected British Prime Minister Boris Johnson speaks during the Conservative Leadership announcement at the QEII Centre on July 23, 2019 in London, England. After a month of hustings, campaigning and televised debates the members of the UK's Conservative and Unionist Party have voted for Boris Johnson to be their new leader and the country's new Prime Minister, replacing Theresa May. (Photo by Jeff J Mitchell/Getty Images)
Now playing
02:27
Worries over Boris Johnson and a 'no-deal' Brexit
REDCAR, ENGLAND - SEPTEMBER 29:  Dawn breaks over the blast furnace at the SSI UK steel plant on September 29, 2015 in Redcar, England. Following the announcement that SSI UK are mothballing the plant and ceasing steel production 1700 jobs at the Teesside site have been lost.  (Photo by Ian Forsyth/Getty Images)
Ian Forsyth/Getty Images
REDCAR, ENGLAND - SEPTEMBER 29: Dawn breaks over the blast furnace at the SSI UK steel plant on September 29, 2015 in Redcar, England. Following the announcement that SSI UK are mothballing the plant and ceasing steel production 1700 jobs at the Teesside site have been lost. (Photo by Ian Forsyth/Getty Images)
Now playing
03:28
Can a free port save this steel community after Brexit?
Now playing
02:58
How DHL is preparing for Brexit
Now playing
01:59
Mondelez CEO: Brexit will add to costs
Pedestrians waling through Waterloo Bridge with the skyline of the City of London in the background on October 27, 2016. 
Britain's economy won a double boost on October 27 on news of faster-than-expected growth following its vote for Brexit and a pledge by Nissan to build new car models in the UK. Gross domestic product expanded by 0.5 percent in the third quarter, official data showed.
 / AFP / Daniel Leal-Olivas        (Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)
DANIEL LEAL-OLIVAS/AFP/Getty Images
Pedestrians waling through Waterloo Bridge with the skyline of the City of London in the background on October 27, 2016. Britain's economy won a double boost on October 27 on news of faster-than-expected growth following its vote for Brexit and a pledge by Nissan to build new car models in the UK. Gross domestic product expanded by 0.5 percent in the third quarter, official data showed. / AFP / Daniel Leal-Olivas (Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)
Now playing
02:13
Why Brexit uncertainty means companies plan for the worst
Pro-European Union demonstrators protest outside the Houses of Parliament against the first vote today on a bill to end Britain's membership of the EU on September 11, 2017. - MPs hold their first vote today on a bill to end Britain's membership of the EU, which ministers say will avoid a "chaotic" Brexit but has been condemned as an unprecedented power grab. (Photo by Tolga Akmen / Tolga Akmen / AFP)        (Photo credit should read TOLGA AKMEN/AFP/Getty Images)
TOLGA AKMEN/AFP/Getty Images
Pro-European Union demonstrators protest outside the Houses of Parliament against the first vote today on a bill to end Britain's membership of the EU on September 11, 2017. - MPs hold their first vote today on a bill to end Britain's membership of the EU, which ministers say will avoid a "chaotic" Brexit but has been condemned as an unprecedented power grab. (Photo by Tolga Akmen / Tolga Akmen / AFP) (Photo credit should read TOLGA AKMEN/AFP/Getty Images)
Now playing
02:20
Businesses growing concerned over no-deal Brexit
WEF
Now playing
00:53
Davos audience votes for second Brexit referendum
Now playing
02:54
Steel company caught between tariffs and Brexit
London CNN Business —  

The pound was whipsawed by political turmoil on Tuesday as UK Prime Minister Boris Johnson suffered a parliamentary revolt aimed at preventing Britain from leaving the European Union without a deal to protect the economy.

In early London trading, sterling had dropped below $1.20 to its lowest level in nearly three years amid growing uncertainty about the future of Brexit and talk of a third UK general election in four years. The currency fell as much as 0.9% to $1.196, the weakest it’s been since a mystery flash crash occurred in October 2016.

It then recovered strongly to trade at $1.209 during the evening after opposition MPs and 21 rebel Conservative lawmakers won a vote that gives them a chance to legislate to prevent Johnson from taking the UK out of the European Union without a deal on October 31.

Johnson has promised to enact Brexit by the end of next month whether he’s secured a deal with EU leaders or not. Opposition lawmakers and some members of his own party worry that leaving without a deal will cause huge damage to the British economy.

Lawmakers succeeded Tuesday night in taking control of the parliamentary agenda so they can attempt to pass legislation outlawing a “no deal” Brexit, unless it is approved by a subsequent vote in parliament.

But Johnson responded to his government’s defeat by saying he would attempt to call an early election. UK media reported Monday that an election could be held on October 14.

Election impact

Some investors fear that a snap election would only heighten the chaos. The outcome could embolden Johnson to pursue his hardline approach to Brexit, or elevate Labour leader Jeremy Corbyn, whose leftist policies could hit asset prices, the thinking goes.

Others view an election more favorably. Deutsche Bank strategist Oliver Harvey said in a note Tuesday that an election would be the “least worst of all scenarios this week,” and would reduce the prospect of the UK crashing out of the European Union without a deal.

Concerns about a Corbyn government “may be overstated,” Harvey said. Labour policies would be temporary and reversible, as opposed to the “permanent shock caused by a no deal Brexit,” he wrote.

Besides, Labour would have limited ability to enact policies that could hurt markets because current polling suggests it would not win an outright majority, and would need the support of other parties in Parliament.

Economy in trouble

Uncertainty about Britain’s future relationship with the European Union — its biggest trading partner — is already weighing heavily on the economy. UK manufacturing data released earlier this week indicated that the sector contracted at its fastest pace in more than seven years. Retail sales data for the month also disappointed.

The UK’s budget watchdog has warned that leaving the EU without a Brexit deal will plunge the country into a recession. The UN trade agency UNCTAD warned Tuesday that Britain could lose at least 7% of its exports to the European Union.

The British economy contracted in the second quarter of the year due to manufacturing weakness and the unwinding of stockpiles built up before an earlier Brexit deadline.

“Recent developments have left sterling traders with little to be optimistic about,” said Craig Erlam, senior market analyst at Oanda, a foreign exchange trading firm. He predicts more volatility ahead.