Is Mark Carney Right?

On Wednesday evening the Bank of England released their Brexit outcome report in which

they highlighted the possible impact of number of outcome scenarios. Indeed, the Bank

was keen to point out that; all of what they unveiled were not actual ‘forecasts’, more

rather ‘potential scenarios’. A whole bunch of ‘what ifs’ then.

The worst case scenario was of course that of the UK leaving the EU immediately, with no

deal and no transition period. Under such circumstances the Bank could foresee an almost

8% drop in GDP, a 25% fall in the pound, a 30% drop in house prices and a 48% fall in the

value of commercial property.

Furthermore, the bank also highlights unemployment rising to 7.5% and interest rates rising

to 4%. I should also mention that this assumption by the Bank is based on the UK reverting

to WTO rules with no new trade agreements in place by 2022.

Well, that’s about as bleak as it could get and if correct, then it would define the worst UK

recession since WW2 and certainly much worse than during the financial crisis. So, quite

understandably the central bank has received a good deal of criticism over this. Perhaps

they knew this would be the case and that’s why their insistence to not label it as an actual


So, if not a ‘forecast’, then what exactly is the point of putting it out there?

The immediate answer is quite honestly; not much really, and whilst its easy to accuse the

Bank of scaremongering here, its also clear that there’s more than an essence of them

covering their backside by delivering it, in addition to the politics of course. So, is this just a

case of the Bank backing the pro EU establishment and/or May’s deal, and consequently

trying to sway the rest of parliament to vote with her on it?

Unfortunately, I think it probably is to a large degree and the timing also makes it very

suspicious too. After all the Bank has had more than 2 years to deliver such a warning, so

why wait until the last minute when parliament is faced with such a ‘Fait accompli?’

However, before we reach the wrong conclusion and cast judgement on this; perhaps we

should also remember that this ‘worst case scenario’ does take into account a situation

where a no deal exit is exasperated by the EU refusing to accommodate the UK after

leaving. So, under such ‘disorderly’ circumstances it is entirely possible that the Bank’s

assessment isn’t necessarily that inaccurate.

Furthermore, this is actually something similar to the outlook I was most concerned about

when I looked at the potential for the GBPUSD back in 2015. All this does rather tie in with

what I noted in my article here on 26 th October where I outlined a potential technical

outlook for the pound. Perhaps I should also re-emphasize here; that was based on the

‘worst case’ scenario and hence not a forecast!

Well, putting sarcasm aside for one moment, I will go further than that, and say under the

circumstances that Mark Carney outlined earlier this week; that this is just the kind of

scenario where the chart could play out as I previously noted. So, if you are reading this on

the website then I would ask you to also refer back to that article of 26 th October.

Why? You might ask? Well, simply because it actually makes Mark Carney’s GBPUSD

forecast (No matter how he chooses to spin that, it is a forecast!) actually look quite

conservative. So, is Carney right to highlight that prospect? For sure he is, but is he and the

Bank wrong like they have been so many times in the past?

I certainly hope so, but at the same time the chart is still there in the back round and that’s

what continually concerns me. I’m not alone in that or why else would the GBPUSD be

where it is right now? I should also say here; that it’s not my job to scare the pants off

anyone and certainly not my intention to do so either. I’m merely bringing it to your

attention and let you decide for yourselves. Maybe that’s all Carney and Co are trying to do


The really alarming part in all this is the fact, that according to the Bank, less than 50% of UK

businesses have made any contingency plans for a disorderly outcome. If that’s true, then it

only serves to underscore the fact that the Bank should have issued this warning a long time

ago and perhaps even more pertinently; that this ‘worst case scenario’ is not yet anywhere

near priced in?