May told her Conservative Party's annual conference on Sunday that she was determined to move on with the process and win the "right deal", in a move to ease fears inside the party that she may delay the divorce.

May said she will invoke Article 50 no later than the end of March next year, referring to the EU's Lisbon Treaty that formally puts the divorce proceedings between the EU and Britain in place.

This means she kicks off the negotiations process before the French and German elections next year and implies the two-year Brexit clock triggered under Article 50 will wind down by March 2019, a year before Britain's next general election.

While the March deadline offers some clarity to the process and underpinned stocks, many in the market worry that the government's stance points to a so-called "hard Brexit" that would see the UK left outside the single market in favour of strict controls on migration.

Though the economy has shown resilience post-referendum, fears of a slowdown in business investment and the wider economy will undermine the pound and the focus turns to possible further easing by the Bank of England in the coming months.

Sterling fell 1 percent to $1.2845, its weakest since early July and not far from the 31-year low of $1.2798 struck on July 6, just days after the June 23 referendum on EU membership. It hit a three-year low against the euro .

"For market participants the key soundbite was that regaining control over EU immigration into the UK would be the priority ahead of membership of the single market," said Shilen Shah, bond strategist at Investec Wealth and Investment. "Sterling has the potential to come under further pressure given the probable stalling of foreign direct investments."

Investors worry a "hard exit" from Europe's single market or what the Royal Bank of Canada dubbed as "Smexit" -- or single-market exit -- will drag Britain into a recession and blow out its ballooning current account deficit, already among the highest in the developed world. A wider current account gap and slowing foreign investments tends to be a drag on the currency.

"May's stance is a reminder that uncertainties related to "Smexit" turbulence could be costly for the economy in the short run," said Sam Hill, RBC Capital Markets senior economist.