Shortly after the Brexit vote’s count was announced, the Bank of England pledged to “take all steps necessary” to prevent future financial instability across the country.
BOE officials said that they were keeping a close eye on current “developments.” Officials also announced that the central bank has developed an extensive contingency plan while collaborating with HM Treasury, other central banks, and state regulators.
The BOE reassured the public that it would meet its responsibility of ensuring monetary stability. BOE’s governor Mark Carney expects some economic and financial volatility to hit the country.
Carney reassured financial institutions that the United Kingdom’s central bank is “well prepared” for a Brexit scenario. Carney reportedly has been in talks with the chancellor, and BOE and Treasury officials the entire night ahead of the Brexit vote.
He said that BOE is prepared to pump over £250 billion into the nation’s banking system.
But the British Pound is already struggling with increased volatility. After the vote it reached its lowest level against the U.S. dollar in more than three decades. Analysts said that the sterling hasn’t been so low ($1.33) since 1985.
FTSE 100 Index future derivatives also dropped 8 percent, while S&P threatened to strip the country from its AAA rating which could give an even harder blow to the national currency.
On the other hand, the price of gold jumped overnight to $1,330 per ounce from $1,265 a day before.
Sterling’s value skyrocketed to $1.5 on Thursday night when people thought that Britain was going to stay in the E.U. But after the real results, currency value plunged 11 percent in just a few hours, marking a historic swing for the sterling.
Yet, BOE officials and other financial analysts have cautioned that the pound may plunge up to 20 percent in the wake of the vote. The British pound was affected by similar swings on 1992 during the “Black Wednesday” and in 2008 at the debut of the financial crisis.
Since 1971, the sterling has rarely dropped below the $1.40 level. That happened in the 1980s when the U.S. dollar was very strong.
U.K. analysts expect the financial sector including the insurance sector to be the worst hit by the Brexit vote. Next in line are homebuilders, closely followed by the oil industry, and commodity traders.
Image Source: Geograph.org.uk