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Bank of England’s Carney: Brexit to Hit UK Incomes, GBP/USD Slides

Bank of England’s Carney: Brexit to Hit UK Incomes, GBP/USD Slides

Martin Essex, MSTA,

Talking Points

- GBPUSD continued to ease in Europe Thursday as Bank of England Governor Mark Carney dropped no further hints that UK interest rates are about to rise.

- Brexit will lead to weaker real income growth, while the prosperity of the UK will depend on the final Brexit agreement between the UK and the EU, he said.

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The British Pound continued to slide against the US Dollar Thursday, retreating further from the recent high of 1.3658 touched on September 20, as Bank of England Governor Mark Carney largely stayed clear of any further comments suggesting that an increase in UK interest rates is imminent.

Speaking at the opening of a two-day BoE conference to mark 20 years of independence for the UK central bank, Carney said monetary policy cannot prevent the weaker real income growth likely to accompany Brexit. However, it can influence how the hit to incomes is distributed between job losses and inflation. The prosperity of the UK will reflect the final Brexit arrangements as well as the Government’s fiscal and structural policies, he added.

In response, GBPUSD eased back, though it remained above the low touched earlier in the European session.

GBPUSD Five-Minute Timeframe (September 27-28, 2017)

Chart by IG

Late Wednesday, BoE Chief Economist Andy Haldane confirmed he was among the majority on the central bank’s monetary policy committee that felt a reduction in UK monetary stimulus might be warranted in the coming months. Sky News quoted him as saying that any increase in interest rates should be seen as a “good news story” for the UK economy.

Earlier this month the BoE surprised the markets when it said that most of its policymakers thought a hike would be needed soon if inflation pressures continue to build. Rates are now expected to be doubled to 0.5% as soon as November 2, when the next MPC meeting ends.

Later speakers at the BoE conference include the Reserve Bank of Australia’s Deputy Governor Guy Debelle and the US Federal Reserve’s departing Vice-Chair Stanley Fischer today and the International Monetary Fund’s Christine Lagarde tomorrow.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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