Mark Carney and Theresa May both delivered speeches yesterday, providing insight into the outlook on the global economy, Brexit and sterling exchange rates ahead. In reviewing the global economy Mark Carney highlighted the significant risks of China, the Trade Wars and no-deal Brexit, stating without a deal it ‘could go quite badly’, and encouraging the sides to reach agreement.
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I was fortunate to be in attendance at the Barbican and was struck by Carney’s confidence over the Bank’s preparations on no-deal, including UK banks holding enough capital to cover worst case scenarios. Stress tests performed by the Bank of England on UK banks back in November survived a 4.7% drop in GDP and a rise to 9.5% of Unemployment.
Carney stated that Brexit is the epitome of a ‘new global order’ following more protectionist economic policies in the global economy, combined with a rising general mistrust in democratic accountability. He highlighted Brexit as the acid test on whether or not such sentiments will ultimately prevail against the more established models of global trade and Government.
Sterling rose fractionally after the speech as Carney’s confident manner helped steady the pound. Theresa May’s speech was also confident, providing a new date of 26th February, for the meaningful vote. All in all, sterling is back ‘treading water’ as investors await further clarity on just what kind of Brexit the UK will ultimately be pursuing.
Tomorrow is another day of debate in parliament which may give rise to amendments to Theresa May’s Brexit bill. However, after yesterday’s speech and the lack of progress on the last series of amendments, it is likely parliament will be forced to await the 26th vote.
Today sees the release of the latest UK Inflation data at 09.30am, which may trigger more short term movements for the pound. Inflation, the change in price of goods has been closely monitored since the major fall in sterling after the Brexit vote. The data is predicted to show a slight fall in Inflation and any deviation could trigger a slightly weaker pound, in removing further the need for any future rates hikes by the Bank of England.
Friday is UK Retail Sales, a key date on the economic calendar which might trigger some movement on pound. Expectations are for small improvements in the data which might provide a small uplift against the more negative economic news this week.
Last week the Bank of England acknowledged a 1 in 4 chance of recession in 2019, before the worse than expected GDP data on Monday. UK GDP figures were down to the lowest levels since the financial crisis, providing a gloomy outlook as the UK sits on the edge of Brexit negotiations, with little clue as to which direction we take after the 29th March, the official Brexit leave date.
We know from previous weeks the pound can struggle in no-mans lands situations such as this, awaiting definitive news to push or pull it in either direction. Clients with a position to buy or sell the pound may benefit from a review of their situation with their account manager to ensure they have made adequate preparations for what may lie ahead.
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