Carney blamed for slump in pound
MARK CARNEY’S gloomy predictions about Brexit were yesterday held responsible for a drop in the pound that has upped the cost of foreign holidays.
The Governor of the Bank of England was described as the “high priest of project fear” after he warned that Britain faced an “uncomfortably high” risk of a no-deal Brexit, which he said would lead to higher prices.
He said banks had “done the stockpiling” and could survive a recession involving property prices falling by a third, interest rates increasing by four percentage points and unemployment rocketing to 9 per cent.
Sterling lost a cent against the dollar after Mr Carney made the comments and approached its weakest level for 11 months, and although it edged back up later in the day, it is still far weaker than it was just a few months ago. The pound also dropped against the euro.
The Governor’s comments came hours before Theresa May met Emmanuel Macron to try to convince the French president of the merits of the Prime Minister’s Chequers Brexit proposal. Market analysts blamed Mr Car- ney’s pessimistic comments for the latest fall in the pound, while MPS criticised him for talking up “doomsday scenario” planning. James Knightly, an economist at ING said: “Mark Carney’s warning isn’t exactly going to help stimulate businesses into action.”
Jacob Rees-mogg, the Eurosceptic Conservative MP, said: “Mark Carney has long been the high priest of project fear whose reputation for inaccurate and politically motivated forecasting has damaged the reputation of the Bank of England.”
David Jones, the former Brexit minister, said: “Mark Carney is in a position of considerable influence and authority … It would be really quite helpful if he considered that before he made statements like this.”
Priti Patel, the former international development secretary, said Mr Carney’s comments had contributed to the “relentless hysteria” around Brexit.
Meanwhile, in a far more optimistic assessment of Brexit, Willie Walsh, the chief executive of British Airways owner IAG, said he was “sanguine” about the effect of no deal on aviation.
He said he was “confident” that a comprehensive transport agreement with the EU would be agreed during the transition period as he dismissed talk of aircraft being grounded.
Mr Walsh said: “It’s going to happen, Brexit is inevitable. The timing of it is clearly the subject of some debate with the transition. Aviation will continue to function. There are some issues that we will need to deal with but it’s not rocket science. We’ve dealt with these issues before and I’m confident that a comprehensive transport agreement will
be agreed between the UK and EU. The idea that airspace will be closed transiting a country, that’s not going to happen. I’m not concerned.”
Mr Carney told BBC Radio 4’s Today programme that “the possibility of a no-deal is uncomfortably high at this point”, but said banks had built up sufficient financial buffers that they can survive a recession worse than the financial crisis and still keep on lending, so even the biggest shock result from Brexit would not phase them.
“The financial system will be ready for that undesirable but unlikely possibility,” the Governor said. Citing a recent “stress test” of the banking system, Mr Carney said: “This is not the prediction for what would happen in a nodeal scenario, but to give you the idea of what they can withstand – [the stress test included] real estate prices going down by more than a third, interest rates going up by almost four percentage points, unemployment going to 9 per cent and the economy going into a 4 per cent recession.”
Although Mr Carney had said the stress test for banks was not a test of their ability to cope with a no-deal Brexit, he gave the overall impression in the interview that “doomsday scenario planning” had been carried out.
In April, £100 bought a tourist $143 for a trip to the US, but then Mr Carney called off a rise in interest rates expected to come in May, surprising markets and contributing to a tailspin which has taken the pound to $1.30 – a loss of $13 for a holidaymaker picking up £100-worth of dollars.