29th Annual International Conference for Students and Young Scientists ‘European integration choice of a country and problems of the economy’

« 29th Annual International Conference for Students and Young Scientists ‘European integration choice of a country and problems of the economy’ November 30-December 1, 2020 organized by the Department of the Global Economics of Alfred Nobel University & Ministry of Education and Science of Ukraine; Ukrainian Association of International Economics; Polotsk State University (Navapolatsk, Belarus); National Institute for Economic Research (Chișinău, Moldova); University of Rzeszów (Rzeszów, Poland); Faculty of Business and Law, Union-Nikola Tesla University (Belgrade, Serbia) Emin Huseynzade Azerbaijan State University of Economics, [email protected] , phd.

Emin Garibli BEHAVIOR OF THE BANK OF ENGLAND AND THE POUND STERLING IN THE CONDITIONS OF BREXIT UNCERTAINTY JEL Category: E31, E43, E58, J64 Abstract The list of sectors affected by the Brexit process include the pound sterling and including the decisions of the Bank of England, which is its regulatory body.

Impacts on the Brexit process have largely occurred since the 2016 referendum. This gives us reason to believe that the main indicator influencing monetary policy in 2016-2020 is the economic and political uncertainties created by the information caused by Brexit.

The purpose of the study is to analyze the fluctuations in the national currency due to the Brexit effect and the reactions of the Bank of England to this process.

We can consider the Brexit process as the peak of Euroscepticism in the United Kingdom.

This issue has also been discussed in the European Union for years.

Although the Brexit process actually took place on January 31, 2020.

However, Brexit uncertainty is having an impact on the economy after certain announcements.

Between 2016 and 2020, the pound and the Bank of England experienced a number of historic lows. Key words: Inflation, Interest, Target rate, Monetary policy, Unemployment rate Introduction The Bank of England has mainly used interest rates to prevent the negative effects of the Brexit process.

The bank last intervened in 2009, when the global financial crisis hit.

The number of interest rate interventions of the bank is three in 2016-2020, when Brexit-related processes are more intense.

In the first of these cases, the interest rate was reduced, and in the others the interest rate was increased.

When the bank mentioned the reason for the change in interest rates, Brexit was mentioned only in the first case as the main reason.

In other cases, Brexit is not the main reason.

As for the pound sterling, the national currency has experienced historic lows with the news of Brexit.

Brexit news also caused fluctuations on the pound. Methodolgy The research methodology is based on a detailed analysis of content.

The article was tried to define the effect of information on the decision of Bank of England and exchange rate for GBP.

For this goal, news article and annual report of Bank of England are analysed.

Exchange rate is analysed according to USD.

The correlation coefficent, determination coefficent and regression equation are calculated between CPI and unemployment rate, are applied formulas: ∑𝑛𝑖=1(𝑦̂𝑖 − 𝑦̅)2 𝑐𝑜𝑣(𝑋𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 , 𝑌𝐶𝑃𝐼 ) 𝜌= ; 𝑅2 = 1 − 𝑛 ; ̂ 𝑦𝑥 = 𝑏0 + 𝑏1 𝑥 ∑𝑖=1(𝑦 − 𝑦̅)2 √𝑣𝑎𝑟(𝑋𝑢𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 ), 𝑣𝑎𝑟(𝑌𝐶𝑃𝐼 ) Result 1.

Markets do not like uncertainties.

In particular, the prolongation of this type of uncertainty can lead to more negative effects.

We have seen this in the example of the pound sterling.

The reason is the long-term uncertainty of people's behavior and psychology, update this information over time and they are doing a negative analysis of new negative statements each time. 2.

We have seen the politicians of the Kingdom evade "Hard Brexit" information.

This is the case with the Bank of England.

For example, the pound lost value after T.May's "Hard Brexit" announcement in 2016.

However, the Bank of England has avoided such statements, and in its reports, as well as in the speeches of bank officials, said that even when a "No-deal Brexit" is on the agenda, the bank is ready for it, or a soft Brexit. 3.

The Bank of England's interventions were primarily to protect the economy from the effects of Brexit.

In the following steps, Brexit was seen as a secondary and tertiary issue.

Thus, it is a bit difficult to stimulate the economy with high interest rates.

In this case, the bank can achieve inflation under the influence of Brexit, as well as achieve its goals by regulating this process with interest rates and other instruments. 4.

The bank relied on the Phillips curve effect felt in recent years in the UK economy to address the minimum unemployment rate.

This attempt was unsuccessful at 0.50%.

At 0.75%, the decline in the unemployment rate was relatively stable.

But it did not increase.

The main reason that hindered this process was the behavior of the population. After the last increase in interest rates, there was a stabilization of only around 4.0%.

In the following period, there was an increase in the unemployment rate due to Covid-19.

At now, the bank has taken certain steps to protect jobs and wages. Electronic copy available at: https://ssrn.com/abstract=3758749 Discussion - Impact of Brexit information on 2016 2016 has gone down in history as a year of practical steps towards Brexit.

The Brexit referendum was held on June 23, 2016.

Earlier, D.Cameron raised Brexit in his election campaign, but said he was opposed to Brexit, especially after gaining some concessions at the Brussels meeting.

However, as a result of the referendum, 51.9% of the population supported Brexit (EU referendum result, 2016).

This process was also marked by a historic decline for the pound.

Thus, while on June 23 the pound gained + 1.16% against the US dollar, on June 24 it lost -8.06% and settled at $ 1.37.

This was the largest loss of value since 1985 (Bank of England, 2016).

At the same time, the euro suffered the largest depreciation in its history against the dollar (-3.3%).

M.Carney of the Bank of England said the bank would fulfill its obligations to ensure financial stability (Rodinova, 2016).

The main intervention of the bank in this matter was on August 4, reducing the interest rate from 0.50% to 0.25%.

It was the lowest level in the bank's 322-year history. The bank also planned to buy assets worth 60 billion pounds or 80 billion under the stimulus package.

The bank said it would buy £ 10bn worth of securities from non-financial companies next month.

The interest rate decline and the program developed were aimed at preventing the crisis that Brexit could cause and ensuring economic recovery.

A number of experts (for example, L.O.

Carol) have argued that monetary policy alone would be ineffective.

In this case, we think that there is a need for a mixture of policies (Chu, 2016).

As for economic indicators, the bank previously announced that the economy will grow by 2.3%, but current situation it has reduced it to 2% in 2016 (Bank of England, 2017).

This was the lowest level since 1993.

Inflation is forecast to rise to 2.4% from the target of 2%.

The reason is imported goods.

At the same time, M.Carney said a lower interest rate was possible.

On October 11, T.May announced that he would promote Article 50 by the end of March 2017, and the news caused the pound to depreciate ($ 1.21) (Wearden, 2016).

This increased the likelihood of a Hard Brexit, and since September 28, the total value loss has been -7%. Impact of Brexit information on 2017 On January 16, 2017, the pound lost -1.08% to $ 1.20 after T.

May's pessimistic statements about Brexit.

On April 18, T.

May announced the parliamentary elections, and with this news the pound appreciated (between 1.27-1.32 US dollars).

The pound traded at $ 1.36 in September amid reports of Soft Brexit.

On November 2, 2017, the Bank of England raised interest rates from 0.25% to 0.50% for the first time since 2007.

M.Carney said growth is expected in the future. He should be noted that he had previously announced that a low interest rate could be reached.

With this step, 45 mln. depositors and people planning to retire got better terms.

However, the main loss is expected to be experienced by households with variable interest rates.

In a statement, M.Carney said the British were cautious and preferred fixed-rate loans.

This covers about 2 million people.

(What Is The Impact Of A Bank Of England Interest Rate Hike?, 2017).

Interest rate growth was justified by the effects of record low unemployment, rising inflation, slowing economic growth, and Brexit (Bank of England, 2017).

Unemployment fell to a 42-year low.

Due to rising inflation and the depreciation of the pound and rising import prices, there were some difficulties in the business sector. The pound lost -1.14% against the dollar and -1.7% against the euro on November 2 following an increase in interest rates.

However, it had the highest exchange rates in 2017 on November 30 ($ 1,353) and December 29 ($ 1,352) (Bank of England, 2016).

Overall, the pound did not lose value in 2017.

Markets do not like.... »