Newsletter 17th October 2022

How Is the Pound Performing now?

The pound has decreased after chancellor Kwasi Kwarteng's "mini-Budget" in September.

Andrew Bailey, the Bank of England governor, indicated he was discontinuing an emergency package to support pension funds, which caused the most recent decline, which saw ￡1 sterling exchange for $1.10.

Along with many other currencies, the pound depreciated against the Malaysian Ringgit, the Lebanese pound, and the Albanian Lek.

The Bank intervened for the second time in two days to prevent "fire sales" of pension fund assets amid the ongoing market instability caused by the mini-budget.

The Pensions and Lifetime Savings Association, which represents the sector, praised the Bank's new initiative but cautioned against removing it "too soon."

Read Governor Andrew Bailey's comments here.

The IMF Predicts Recession in 2023

The International Monetary Fund has forecasted a problematic 2023, cutting growth projections and anticipating economic recession in one-third of the world.

As of right now, a 2.7% increase was projected in 2019. Compared to the 3.2% increase anticipated for this year and the 6% growth recorded last year, it is less than planned.

The IMF stated that disregarding the acute period of the COVID-19 epidemic and the global economic crisis, this is the "weakest growth profile" since 2001.

The "significant slowdowns" for the largest economies are reflected by the fact that the GDP of the United States shrank in the first half of 2022, the Euro area's GDP shrank in the second half of 2022, and COVID-19 outbreaks and lockdowns in China with an escalating property sector crisis were prolonged.

While the IMF warned the UK after the mini-budget market upheaval, this World Economic Outlook report was compiled before the chancellor's mini-budget announcement. It did not reflect the subsequent market action.

Nonetheless, IMF head economist Pierre-Olivier Gourinchas told reporters that the government should guarantee its tax and spending plans are consistent with the Bank of England's mandate to combat inflation.

The global economy's future health depends on the "proper calibration" of monetary policy, the resolution of the Ukrainian war, and the risk of other pandemic-related supply-side disruptions, such as in China.

Government Cuts Red Tape for Businesses to Grow

UK's fastest-growing firms will be exempted from reporting obligations and other rules in the future as part of Prime Minister Liz Truss' ambitions to enhance efficiency and supercharge growth.

Currently, small enterprises are believed to be free from some rules. However, many medium-sized firms still indicate that they spend more than 22 staff days per month on average dealing with regulation, and more than half of all businesses view regulation as a burden to their operations.

The Prime Minister?plans to extend these exemptions to businesses with fewer than 500 employees for future and reviewed regulations, which means that an additional 40,000 companies will be exempt from future bureaucracy and the associated paperwork, which is costly and burdensome for all but the most prominent firms.

The exception will be implemented reasonably to maintain employees' rights and other requirements while easing the burden on growing businesses.

The amendment applies to all new rules under development and those under review, including preserved EU legislation. The government will also look at the future to consult on potentially raising the barrier to 1,000 workers.

This is the first stage in a series of measures to ensure that UK corporate regulation benefits the UK economy.

The Bank of England Reveals the Results of Its Stress Test

The Bank of England has published the findings of its first public supervisory stress test of UK central counterparties (CCPs).

The exercise assessed the credit and liquidity resilience of these CCPs under a severe market stress scenario and the simultaneous default of selected clearing member groups. While results vary across CCPs, no CCP experienced complete depletion of pre-funded financial resources or a negative liquidity balance.

The study also included a reverse stress test in which CCPs were put to a series of more extreme assumptions to determine what would completely deplete their pre-funded and none pre-funded resources.

The findings will now be considered in conjunction with input received in response to the Bank's Discussion Paper on CCP supervisory stress-testing to assist, establish and enhance the Bank's CCP supervisory stress-testing regime.

In 2023, the Bank will issue a final framework document for CCP supervisory stress testing.

Read Sir Jon Cunliffe, Deputy Governor for Financial Stability, comment here.