It is interesting how Sterling is appreciating despite the Bank of England’s financial stability report warning of a disorderly Brexit unleashing a savage recession.
A negative scenario where the UK crashes out of the European Union with no deal in place could result in GDP tumbling 8% within a year, while Sterling is projected to weaken 25% to below parity against the Dollar. With inflation expected to jump 6.5% amid a severely depressed Pound and unemployment seen rising to 7.5%, the outlook in an event of a no-deal outcome looks highly unfavourable. On the bright side, the Bank of England stated that a close economic partnership with the EU could boost GDP growth by 1.75% over the next five years. It seems investors are focusing on positive aspects of the BoE’s financial stability report to push the Pound higher. Today’s report is likely to provide Theresa May some ammunition when she sells her Brexit deal to parliament.