The pivotal point of the Global Financial Crisis was arguably the collapse of Lehman Brothers, which triggered the final throes of the financial state of emergency and with it, the nadir just six months later. This historic clash for the industry passed its 10th anniversary this weekend and while many lessons have been learned from the mistakes of the past, we hope markets and institutions alike are much better prepared for the next recession.
Continuity is key in navigating uncertainty. That is why we have seen an increase in volatility this year, as arguably the most influential central bank, the US Federal Reserve, had a change of leadership. The European Central Bank is also looking to change its president next year, which will be when their quantitative easing programme will have ended, .
With Brexit hitting the headlines daily and with just over six months until deadline day, it is natural that uncertainty is pushed to the fore. That is why continuity is important to the UK and the announcement that Mark Carney has agreed to a further extension to his tenure as governor of the Bank of England is good news.
Mr Carney originally increased his tenure from mid-2018 to mid-2019; this has been extended for a further year and while his family will return to Canada as originally planned in the second half of 2019, Mr Carney will remain in place until mid-2020. This will provide much needed stability during Brexit and having continuity of leadership for the Bank of England during a potentially turbulent period is critical for the UK economy.
Wasting no time in managing expectations with regards to the divorce from EU, Mark Carney delivered a chilling warning to Theresa May’s cabinet that a ‘no-deal Brexit’ could lead to economic chaos. The media promptly focused on the one point that would send a chill down the spine of most residents in the UK: that UK property prices could fall by a third. This worst-case scenario would be driven by rising unemployment, depressed economic growth, higher inflation and higher interest rates.
However, the brighter side of the coin is the output of the Chequers meeting, the prime minister’s blueprint for the UK’s post-Brexit relations with the EU. Under this scenario, governor Carney said the UK could expect an economic boost of £16 billion, as the UK would have more access to the European market than we do currently. This would allow the UK to recover most of the lost output from the 2016 referendum, which knocked around 1% off the size of the UK economy.
Having consistency in leadership will be critical in piloting Brexit, that is why Mark Carney’s agreement to remain as governor is a boost for Theresa May, who this week will be in Salzburg, as the first part of a trilogy of summits to an historic UK-EU agreement.
