The British pound’s losses deepened in October on worries that a “hard Brexit” would restrict banks’ access to the single market, leading to speculation that major financial institutions may relocate out of London.

Bankers’ “hands are quivering over the relocate button,” wrote Anthony Browne, CEO of the British Bankers’ Association,[1] in response to Prime Minister Theresa May’s call for a hard exit from the European Union.

As one of the world’s major financial centres, London would be devastated by a mass exodus of banks over Brexit fears. Financial institutions pay more than £60 billion in taxes each year, making them a huge source of revenue for the British economy.

Concerns about an exodus of banks have weighed on the British pound, which has declined a staggering 18% against the US dollar since the June 23 Brexit vote. The Bank of England (BOE) is already preparing for the blowback, having eased monetary policy in August for the first time since the financial crisis.

The GBP/USD exchange rate referenced by the global currency system ended the month of October in the low 1.22 region. It was trading above 1.55 at the same time last year. A flash crash in early October sent the pound to its lowest level in 168 years.[2]

The BOE has warned that a plunging local currency may result in higher inflation, something policymakers will be forced to stomach as they prioritize economic growth over short-term price stability. According to central bank governor Mark Carney, the BOE is willing to overshoot the 2% inflation target over the short term.

BOE policymaker Kristin Forbes said the overshoot could be “sharp” due to the stimulus measures announced in August.

“All in all, partly due to this package, partly due to the underlying momentum in the economy, partly …

British Pound Under Renewed Pressure as Hard Brexit Looms
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