08/02/2019 - Pound Recovers After Balanced Carney Statement

GBP

The pound recovered from 5 days of losses after Mark Carney said markets should keep the prospect of further interest rate increases on the table. The start of the day saw Sterling dip after The Bank of England cut its growth forecasts from 1.7% previous to 1.2% for this year. The reason behind a cut in growth forecast is down to the uncertainty surrounding Brexit and the slowing global economy which is impacting business and consumer confidence. The Bank of England warned that there is a 25% chance of a recession and the U.K. could be on for it’s weakest year since the global financial crisis.

The pound did recover after comments made by Mark Carney, where he went onto say ‘markets shouldn’t prepare for a scenario without rate hikes’ implying that interest rates increasing in the future should not be ruled out.

In terms of Brexit, talks are at a standstill with the EU refusing to budge over Theresa May’s demands. According to three senior EU officials, May asked several times for the EU to include a time stop on the Irish backstop but both Michel Barnier and Jean-Claude Junker rejected the idea of a time stop. Furthermore Junker told May he is not willing to reopen the divorce deal which was agreed at the back end of last year according to an U.K. official.

May proposed three options that she’s considering for changing the backstop: alternative arrangements including technological solutions; a time limit; and a unilateral exit clause. May did not have a preference but seeks to find alternatives with the deadline for leaving the EU fast approaching.

May will continue talks in the coming weeks with the EU and with other U.K parties trying to get the deal over the line. Corbyn has offered his support to May but will only offer work with her if she is committed to staying in the customs union which is a way around the Irish backstop problem.

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