Bank Of England Carney Steps Into The Brexit Conversation

The UK has been receiving more than its share of headlines lately as the Brexit referendum date creeps closer. June 23^rd is just 60 days from now and a new poll shows that a surge to remain in the Eurozone is reducing market stress.  The Guardian reported that Mark Carney, governor of the Bank of England, has told peers that leaving the EU could lead to lower growth. In evidence to the Lords economic affairs committee, he also defended the Treasury’s report about the long-term implications of Brexit, saying it made “broad sense”, and said the City could lose its status as a pre-eminent financial center if the UK left the EU. Carney is still giving evidence, but is now discussing other issues.

The pound is trading near the top of its trading range at 1.4374 after breaking the 1.44 range. Earlier on Wednesday the monthly jobs data disappointed. Data this morning revealed that U.K jobless claims rose for first time in four-months and hourly earnings printed their lowest level in nearly two-years (wages excluding bonuses rose 2.2% annually). The unemployment rate for February was unchanged at +5.1%.

Sterling briefly fell on the release to around 1.4350, while EUR/GBP edges up to trade last at €0.7910. With risk ‘premium’ costs falling, expect the market to continue to search for lagging currency pairs. Many will naturally focus on sterling as it has been beaten up on Brexit talk for some time. The pound optimist would argue that it might take persistently bad news to keep GBP near current outright levels.

MercoPress said that “Assessing and reporting major risks does not mean becoming involved in politics; rather it would be political to suppress important judgments,” he told a House of Lords committee.

Carney said the vote was the biggest risk to the UK’s financial stability and added that uncertainty was already hitting the growth outlook.

The governor said that while the Bank of England had not made “and will not make” any overall assessment of the economics of the UK’s EU membership, assessing the implications were necessary for it to do its job – maintaining monetary and financial stability.

He said a vote to Leave “might result in an extended period of uncertainty about the economic outlook” which would be likely to affect demand in the short term and could affect the supply side economy.

Mr Carney’s appearance in front of the committee comes just days after the Bank of England said the EU referendum could hurt growth in the first half of this year. The Bank warned uncertainty over the EU referendum could cause “some softening” in growth in the first half of 2016.

Carney says uncertainty created by referendum seems to have had negative effect already. In his opening statement to the committee Carney said the uncertainty generated by the EU referendum was already seemed to be having a negative effect on the economy.

Households’ financial expectations for the year ahead took a turn for the worse in April as the pressure from rising prices picked up.

For the first time in three months, UK households were downbeat overall about their financial well being over the next 12 months, the Markit Household Finance Index found.

Readings of 50 in the index mean people’s situations have not changed, while ones above this level indicate an improvement, and readings below 50 show people’s situations are getting worse.