Sterling is making some small and steady gains this morning ahead of a speech to parliament from BoE Governor Mark Carney this afternoon. The FTSE 100 is trading pretty much flat on the day but remains well supported above the 7500 level.
IMF: Brexit uncertainty hurting UK economy
Despite a strong recovery in the world economy, the International Monetary Fund (IMF) says that Britain’s vote to leave the EU is already damaging the UK. The annual report on the UK economy also warns that the losses in tax revenues could exceed any gains from ending the net contributions to Brussels post-Brexit. Growth rates in the UK have declined this year in stark contrast to the increases seen in Europe, the US and Japan and the IMF attribute the bulk of the blame on the decision to leave the EU. The fall in the pound as a result of the referendum has contributed to gains from higher exports, but this fails to offset the negative consequences according to the fund, with GDP growth of around 1.6% this year coming in almost a full percentage point below the forecast prior to the Brexit vote.
Hammond warns of productivity challenge
The Chancellor of the Exchequer has warned that the UK faces a significant productivity challenge ahead after supporting the IMF’s view that the Brexit vote is already having a negative effect on the UK economy. Speaking alongside IMF chief Christine Lagarde, Philip Hammond struck a cautious tone when outlining the country’s future prospects stating that the more uncertainty there is about Brexit, the greater the risk to the UK’s growth. From a fiscal standpoint Hammond explained his belief that a reduction of the the budget deficit is needed to create room to respond to future shocks and turning his attention to monetary policy he commented that a faster pace of rate tightening from the BoE may be needed if the fall in unemployment - which is at its lowest level since 1975 - leads to too rapid wage growth.