Sterling under pressure as Carney flags no-deal Brexit

Bank of England governor sees ‘uncomfortably high’ risk of UK crashing out of EU

Against the euro, sterling slipped by 0.1 per cent to 89.10p. Photograph: iStock

Against the euro, sterling slipped by 0.1 per cent to 89.10p. Photograph: iStock

 

Sterling dropped back below $1.30 after the governor of the Bank of England said there was an “uncomfortably high” risk of a no-deal Brexit.

Mark Carney told the BBC Today programme that for the UK to crash out of the EU without a deal would be “highly undesirable” and both parties “should do all things they can to avoid it”.

Against the euro, sterling slipped by 0.1 per cent to 89.10p.

Speaking a day after the Bank of England raised interest rates to their highest level in almost a decade, Mr Carney said that a no-deal Brexit, while still a “relatively unlikely possibility”, “certainly does mean disruption to trade as we know it”, as well as “disruption to the level of economic activity and higher prices for a period of time”.

Shock scenario

To stress-test the financial system’s readiness, the governor said the Bank had modelled a shock scenario where real estate prices fell by a third, interest rates went up to 4 per cent, unemployment to 9 per cent and the economy went into a 4 per cent recession. Interest rates are currently 0.75 per cent and unemployment at 4.2 per cent.

Sterling fell to $1.2973, down around 0.3 per cent against the dollar on the day. The UK pound has only traded lower on one day since last September, on July 19th.

Mr Carney also reiterated comments that markets should not expect a rapid rise in interest rates, with rates of 1.5 per cent in three years time “not a bad rule of thumb”. – Copyright The Financial Times Limited 2018