Sterling is trading a little lower today after Monday’s session saw the currency hit an 8-week high against the US dollar. After a bright start the FTSE 100 ended lower yesterday, but the market is attempting to rise once more today and is currently close to its highs after adding more than 30 points on the day.
Carney cautions on painful Brexit
The pull back in the pound has come after BoE Governor Carney warned of economic pain ahead if Brexit can’t be smoothed during a press conference in London this morning. The depreciation seen has been mild in its strength but it comes as a timely reminder of the challenges ahead for the UK, with the clock ticking on Brexit and little progress with regards to the terms of separation having been made.
Carney has been criticised from several quarters over the past year for appearing to take sides in the Brexit debate, with dour warnings and underestimations in economic forecasts providing ammunition for Brexiteers to complain about his perceived lack political impartiality. However, as the Governor of the BoE it is nigh on impossible to ignore the elephant in the room and carry out his job in a satisfactory manner and the latest comments reinforce his previously stated beliefs that there remains several major potential headwinds relating to Brexit ahead should it go anything but swimmingly.
Most extreme stress tests yet for UK banks
The comments from Carney came following the publication of the outcome of the most extreme stress tests yet for UK banks, which indicated that Barclays (LON:BARC) and RBS (LON:RBS) are the most vulnerable to a severe economic shock. Following the bailouts in the banking sector after the last financial crisis, annual stress tests are designed to probe banks’ balance sheets to assess their ability to continue operating without the need for taxpayer money under a doomsday scenario. To further highlight Carney’s concerns surrounding Brexit, the BoE’s severe economic stress scenario was in their mind equivalent to the worst possible outcome for the UK’s departure from the EU.
The hypothetical situation tested how banks would perform if UK unemployment rose to 9.5% and there was a 33% drop in British house prices. Overall the banks’ projected performance was pretty robust with even the worst positioned in Barclays and RBS seeing their capital ratio fall to 7% and 7.4% - slightly below their minimum requirements of 7.4% and 7.9% respectively. Barclays shares have seen some selling following the publication, falling by a little over 1% whilst RBS is pretty much flat on the day.