The Pound has seen some strong selling this morning after the Bank of England (BoE) Governor Carney ruled out a rate hike during a speech at Mansion House. The FTSE 100 has reacted positively to the news with the UK blue-chip index rising around 30 points to trade back within 1% of its all-time high.
“Not yet the time” to raise interest rates
Decidedly dovish comments from BoE Governor Carney this morning have seemingly confirmed that an increase in the bank’s base rate remains unlikely for the foreseeable future, despite growing calls from the rate-setting committee just last week. Three members of the MPC voted against holding rates at record lows of 0.25% during last week’s meeting in a development that caught markets off guard, with the pound spiking higher as traders began to think the bank’s tolerance for above target inflation could be wearing thin.
However, Carney has moved to dispel this notion today in a speech that was due to be given on Thursday night but was rescheduled in light of the tragic events following the fire at Grenfell Tower. This rearrangement has seemingly altered the content of the speech with BoE members prohibited from discussing monetary policy on the day of a rate decision barring the official channels of communication. With the speech originally scheduled just a few hours after the announcement Carney would have had less scope to express his personal opinion and has likely adopted a more dovish tone due to the restrictions no longer being in place when he took to the lectern this morning.
Hammond undermines May’s “Hard Brexit” vision
During the same event as Carney’s comments Chancellor Hammond also addressed the city and in doing so made a case for a “soft Brexit”. Whilst the Prime Minister has prioritised gaining control of immigration as part of Britain’s exit from the EU over access to the single market, Hammond this morning hinted that this may not be universally backed within the cabinet. In effect the Chancellor adopted a far softer stance and called for a “deep and special future partnership” with the EU.
Early Brexit concession shows pragmatism over pride
The first day of Brexit negotiations saw the UK concede that it would follow the schedule for dialogue as suggested by the EU in what is an apparent u-turn for the UK’s stance. Brexit secretary David Davis had previously stated that he would insist on so-called parallel talks, meaning that both the divorce terms and the future relationship would be discussed simultaneously. Whilst this early concession has drawn criticism from some quarters it could well prove to be a shrewd move and be a signal that the UK is more willing to accept a soft Brexit.
Davis’ comments, in which he described the ordering of negotiations as a battle that would become the “row of the summer”, were made prior to the UK election which saw the Conservative plans to increase political power and pursue a tough negotiating stance rejected at the ballot box. Ultimately whether the negotiations are sequential with “divorce terms” discussed first or whether they occur simultaneously is of little significance and hopefully this early concession will avoid a period of political stalemate and allow as swift as possible transition to talks on the future relationship.
The notion that the UK would enter these discussions in a position of power is highly disputable regardless of the outcome of the recent election, and the early concession on the UK’s behalf is hopefully a sign that pragmatism - rather than senseless posturing - will be at the forefront of the negotiations, which could well be the most important in a generation.
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