Mark Carney to urge calm over UK's markets following Brexit vote

Mark Carney

The governor of the Bank of England is to use a speech on Thursday to try to calm fears that Britain’s financial system could experience a heart-stopping shock following last week’s vote to leave the EU.

Mark Carney is expected to say the contingency plans put in place by Threadneedle Street have kept funds flowing in the City and bolstered confidence among the business community.

His soothing message will follow fresh warnings that the gyrations seen in financial markets since last Friday are only a taster for later in the year and 2017 when exit negotiations get under way.

Surveys of business owners and lenders also showed the UK economy was poised to have a run of insolvencies, a downturn in investment and higher unemployment as the after shocks of the referendum vote damage business and consumer confidence.

A poll for YouGov found that consumer confidence dived in the five days since the referendum vote as concerns grew about house prices and the likelihood of being made redundant.

The YouGov/Cebr consumer confidence index, which measures people’s economic sentiment daily, tumbled from at 111.9 in the first three weeks of June to 104.3 in the days after the vote. The last time consumer confidence was at this level was in May 2013 when it was at 102.9, those behind the index said.

An earlier barometer of consumers by market research fim GfK found that an already nervous public went into the referendum with “a deepening pessimism over the general economic situation”.

The Gfk survey, which is conducted in each EU country for the European commission, was slightly higher in June at -1 compared with -3 in May, but still 18 points lower than the same time last year.

The rating agency Fitch warned that firms were going to delay investment and hiring decisions as a result of the Brexit vote, taking a significant toll on the UK economy.

Fitch – which along with fellow rating agency, Standard & Poor’s, downgraded the UK’s credit rating on Monday – cut its forecasts for GDP growth and said the UK’s vote to the leave the EU had come at a time when the world economy was at a “fragile juncture”.

The Economist Intelligence Unit went further, saying financial markets would continue to panic as the twists and turns of negotiations between the UK and EU reverberated across international money markets.

“This process will commence with the triggering of article 50 of the EU treaties. We expect financial market volatility to persist as events unfold and uncertainty over the future of the UK’s relationship with the EU will feed into the real economy,” the consultancy firm said.

Britain’s economy will shrink next year by 1%, it said, revising its previous prediction of 1.8% growth.

Oxford Economics, another consultancy, said the Brexit vote had come at a bad time for the global economy, which has slowed over the last year.

It said: “Our world recession indicator is already at elevated levels and suggests a significant danger of world growth slipping below 2% this year; not a recession, but it might feel like one.”

It said the UK would avoid a recession, but would see its growth seriously damaged.

Insolvencies would rise in the short term across the UK and in countries with close ties to the UK, especially Ireland, the Netherlands and Belgium, trade credit insurer Atradius said.

It said the food business would be among the worst affected along with other industries that depend on trade, including lorry and truck makers, textile and electrical equipment firms and the chemicals sector.

The Labour leader, Jeremy Corbyn, called on the prime minister to relax the Treasury’s austerity measures in response to the credit rating agencies’ downgrades and forecasts of a worsening outlook.

Corbyn asked for reassurances about investment and called for the government to relax its fiscal rules that aims to achieve a budget surplus by 2020.

“Our country is divided, so we must heal that division,” he said. “Our economy is fragile so we must begin to rebuild it.”

Fitch said the outcome of the referendum would hit investment because of the uncertainty surrounding the future of the UK’s trading relationship with the EU; the regulatory backdrop; and political uncertainty, including a possible referendum in Scotland.

“The main source of uncertainty relates to the future of the UK’s trading relationship with the EU – its main trading partner and destination for 44% of UK exports,” Fitch said. It also cast doubt on any hope that the UK would secure membership of the European Economic Area trading bloc, as suggested by some.

“This uncertainty will prompt firms to delay investment and hiring decisions, while elevated financial market volatility will further damage business confidence,” the agency said.

Carney’s speech will follow his address from the Bank last Friday, just as the markets were opening for the first time since the result of the referendum was announced. In that televised address he said the central bank would take any measures needed to secure economic and financial stability.

Five days ago, with the markets wrongfooted over the Brexit vote, Carney had stressed banks were stronger than before the 2008 financial crisis. But he also spelt out that bank officials could inject an additional £250bn to the system ensure that financial institutions did not run short of cash during the uncertain period ahead.

Powered by article was written by Phillip Inman and Jill Treanor, for The Guardian on Thursday 30th June 2016 00.01 Europe/London © Guardian News and Media Limited 2010


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