BoE: Brexit is a key risk – Deutsche Bank

Deutsche Bank analysts point out that in the UK, Bank of England Governor Carney generated some headlines yesterday when testifying to a Parliamentary committee. 

Key Quotes

“On the policy front, he emphasised that Brexit is the key risk, with "the degree of uncertainty high" and was sanguine about the disconnect between markets and the BoE's own forecasts.”

“Markets are resistant to pricing hikes, he said because investors ascribe "some possibility to no deal," in which case there would be easing. Carney seemed to ratify this view, but cautioned that "we would do what we could to support the transition to no deal, but there's no guarantee on that." Relatedly, he pushed back on the view - recently espoused by Boris Johnson among others - that the UK could retreat to the relationship under article 24 of the GATT, which would maintain existing rules while negotiations continue.”

“Carney said such an arrangement would need to be multilaterally agreed and the EU has showed no signs of interest. Boris Johnson said last night that he thought the chances of a no deal Brexit were a “million to one” but that he was prepared for one. He is going to have some tough times squaring this if and when he gets elected!”