The British pound weakened against all major currencies on Thursday, a day after the Bank of England offered a stark warning on Brexit. Under a “no deal” outcome, sterling will lose between 15 and 25 percent of its value, the Bank said.
The British pound is back under pressure on Thursday, a day after the Bank of England painted a grim picture of UK life under a no-deal Brexit.
Sterling fell across the board, with a special note saved for GBP/NZD, which sank to its lowest rate since October 2017, at just N$1.8572. The pound was worth 10 percent more against the kiwi only 7 weeks ago.
Having slipped by two-thirds of a cent, sterling’s benchmark exchange rate, GBP/USD, traded on Thursday at $1.276, ahead of significant support between $1.266 and $1.27.
To senior members of parliament, the BoE described on Wednesday a number of scenarios for post-Brexit life, based upon stress tests of the UK’s economic and banking systems.
In the event of a “disorderly” no-deal outcome, under which there will be serious border delays and a marked loss of confidence in Britain’s financial markets and institutions, the BoE predicts UK economic contraction of 8 percent in the space of a year (that’s more than during 2008’s financial crisis) and a spike in unemployment, inflation and interest rates. Crucially, it also sees sterling worth 25 percent less, at levels sub-$1.0. House prices, too, will bite the dust, with a 30 percent fall.
The BoE stresses that the worst-case scenario painted above is not its base expectation; it is, however, an all-too-real possibility and a warning to British businesses that adequate preparations must be made.
More likely to transpire is what the BoE is calling a “disruptive” no-deal Brexit, under which goods face tariffs but flow somewhat easily, and in this case sterling still loses 15 percent of its value and GDP falls 3 percent.
The UK is scheduled to leave the EU in precisely 4 months’ time, on March-29 2019.
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