Home » Currency Note » Currency Note » Brexit analysis defended by Mark Carney

Yesterday, Mark Carney defended the Brexit analysis released by the Bank of England last week. The Governor of the BoE was testifying to Parliament’s Treasury Committee and said that some of the criticism the analysis attracted was entirely unfair. He pointed out that the Bank has a responsibility to the public and the analysis was requested by the Treasury Committee. He then went on to tell MPs that a core team of 20 senior economists worked on the text for a couple of years, and another 150 professionals from across the Bank assisted.

It is worth bearing in mind that the analysis modelled several possible outcomes, with the worst-case scenario attracting the biggest headlines. The key points from the Bank’s scenario for a disorderly Brexit are that GDP would fall by as much as 8% next year, house prices would fall by 30%, the pound would weaken by a quarter, inflation would hit 6% and interest rates would be hiked sharply as a result. Of course, this scenario is still extremely unlikely, but it certainly offers food for thought.

Amidst all the political uncertainty surrounding Theresa May’s Brexit deal, sterling began the day by jumping against the dollar and it made gains against the euro too. The moves came following comments made by the European Court of Justice’s Advocate General, Manuel Campos Sánchez-Bordona, who said that the UK can revoke Article 50 and remain in the European Union. However, as the day wore on, all the gains were lost and the pound ended up losing ground. After the UK government was found to be in contempt of Parliament, sterling fell below the $1.27 level and dipped below €1.12 too.

It was a very bad day indeed for the government, as it suffered three Commons defeats in one day. In addition to the contempt charge, MPs voted down a government compromise and passed a cross-party amendment which is designed to strengthen the hand of Parliament if Theresa May’s deal is voted down. The government is set to publish the full legal advice at around 11:30am today.

This volatility isn’t going to abate any time soon, so it is vital that anyone making a purchase overseas plans how to reduce the risk. Take the example of yesterday: in just nine hours, a €300,000 property’s purchase price in GBP would have changed from £266,806 to £268,163. Speak to your Personal Trader on 020 7898 0541 to find out how to fix in the same exchange rate for up to a year using a forward contract.

Today’s highlights include November’s new car sales figures from the UK, as well as the Markit services purchasing managers’ index. In the eurozone, we will see composite and services PMI for Germany and the euro area, and European Central Bank president Mario Draghi is set to give a speech. Across the pond, we will see the ISM non-manufacturing PMI for last month. It will be interesting to see if the government does what it says it will and publish the full legal advice today.

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