Fears of ‘hard’ Brexit hurt pound sterling

The pound sterling hit a 32-year low Monday ahead of a speech Tuesday in which British Prime Minister Theresa May is expected to lay out a so-called “hard” Brexit from the European Union and its single market.

The world’s third-most widely held reserve currency fell 1.6 per cent to reach a low of US$1.1986 in early London trading Monday; the last time it was below US$1.20 was in October during the so-called flash crash, when a sell-off by the Japanese operations of Citigroup Inc. is believed to have exacerbated a slide in the currency triggered by weak trading in Asia.

In an interview with Germany’s Welt am Sonntag newspaper, British chancellor Philip Hammond admitted an exit from the common market could rankle his country’s economy. “If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term,” he said. “In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness.”

Britain’s exit from the EU would allow the country to retake control of its immigration and remove it from the jurisdiction of the European Court of Justice, he said.

“We should be able to reach an arrangement to allow, on a reciprocal basis, access to each other’s markets without the political integration that membership of the EU has come to imply,” he added.

The chancellor said he believes the U.K. and E.U. could reach a new arrangement in which key companies, for example auto giants like Volkswagen, would be able to sell in the British market without having to fork over tariffs.

On Monday, Bank of England governor Mark Carney used his first speech of 2017 to warn that the U.K.’s interest rates could go up or down. Carney told an audience at the London School of Economics that the country is “entering a period of somewhat higher consumer price inflation” and that U.K. households are “entirely looking through Brexit-related uncertainties.”

The central bank head said this could cause a monetary policy to go “in either direction,” to maintain price stability.