The outcome of the UK’s referendum pushed the national currency toward record lows. The pound sterling showed its worst three-week performance since the currency’s 1992 crisis, following Britain’s shock vote to leave the European Union. The pound instantly slipped 2.2% to $1.3031 for the first time since 1985. The pound also weakened notably versus the euro, hitting the lowest level since 2013. The pound is still down respectively 13% and 10% since the Brexit vote on June 23.
Importantly, Bank of England responded immediately, thus halting the pound’s decline. Governor Mark Carney assured markets of contingency measures to cushion the fallout from Brexit. “Carney stands ready to use all available tools,” said Nick Parsons, head of research for the UK and Europe at National Australia Bank in London. “To the market, that means more easing and a weaker sterling.” Indeed, British exporters will benefit from the weaker currency. However, the BoE’s contingency plan is not able to cool down turbulence in financial markets as investors are voicing concern about UK’s economic growth this year. In the biannual Financial Stability Report, the Bank of England aimed to dispel these fears by cutting its capital requirements for British banks. Besides, the regulator pledged to adopt extra measures if needed. Commenting on the report, Mark Carney noted that the post-Brexit plan is working, but warned that it cannot fully offset volatility triggered by the referendum outcome.
