Brexit Update: Stimulus May be Necessary to Counteract Market Shocks
Bank of England (BoE) Governor, Mark Carney, delivered a much-anticipated speech yesterday outlining the central bank’s plan to maintain economic stability. The speech, aptly titled “Uncertainty, the Economy and Policy,” introduced the possibility of monetary easing to be implemented as early as this summer. The BoE will also evaluate the effectiveness of other monetary tools and financial policies to boost its currency and continue to assess the impact of the United Kingdom’s (UK) referendum. “The result of the referendum is clear. Its full implications for the economy are not,” said Carney.
Carney insisted that the BoE was well prepared for the aftermath of last week’s vote with the contingency plans it had drawn up in advance with HM Treasury. “They are working well,” he said, in terms of helping the economy endure initial market shocks. Still, Carney said the UK should expect to see major regulatory change and a shift in the focus of monetary and fiscal policy in the short-term to managing financial stability. He described what he called “economic post-traumatic stress disorder,” in which there is “a heightened sensitivity to downside tail risks, a growing caution about the future, and an aversion to assets or irreversible decisions that may be exposed to future ‘disaster risk’.” Notably, Carney’s speech did not boost the British pound’s value in currency trading.
£1 GBP = $1.33 USD
€1 EUR = $1.11 USD
(as of 7:30 AM EST, 7/1/2016)
UK Faces Increasing Political Unrest – Domestic politics have been unsettled in an unprecedented manner in the UK with the announcement of Prime Minister David Cameron’s resignation, Boris Johnson’s withdrawal from consideration to replace Cameron, and the no-confidence vote against Jeremy Corbyn.
EU Cities Compete for London Jobs – Paris and other major European cities, including Frankfurt and Dublin, prepare to lure London’s financial services jobs, capitalizing on regulatory uncertainty.
Recession Ahead for UK – Banks and analysts predict a steady recession for the UK economy this year and into next year. Outside of the EU, effects are expected to be minimal.
World Leaders Predict Tough Road Ahead for EU – Russian President Vladimir Putin predicts Brexit will have “traumatic effect” on the EU.
Brexit Draws Comparisons to Trump Campaign – The UK referendum has drawn comparisons to the upcoming United States (US) presidential election. The sentiments of the “leave” campaign have particularly resonated with supporters of Republican candidate Donald Trump.