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Pound pushes higher as investors welcome Mark Carney's decision to stay


Sterling rose as high as 1.228 against the US dollar on Tuesday

Sterling rose as high as 1.228 against the US dollar on Tuesday

Sterling rose as high as 1.228 against the US dollar on Tuesday

The pound was pushing higher as investors applauded Mark Carney's decision to stay on as Bank of England governor until June 2019.

Sterling rose as high as 1.228 against the US dollar and 1.117 against the euro in early trading on Tuesday.

Investors were comforted by Mr Carney's announcement that he would extend his tenure past 2018, which will cover the full two-year period of Brexit negotiations - assuming Prime Minister Theresa May stands by her pledge to trigger Article 50 by the end of March next year.

However, Mr Carney stopped short of committing to a full eight-year term. When he took up the post in 2013, it was agreed that Mr Carney would serve an initial five-year term with the option of another three years.

While the announcement was enough to cause a rally in the pound, SpreadEx financial analyst Connor Campbell said "not enough to prevent Britain from once again looking foolish in the eyes of the globe's financial elite."

"Carney will see his own Brexit in 2019, a year longer than his initial contract, but not the 2021-hitting term May, Hammond and most financial analysts were hoping for."

The governor faced mounting speculation that he was preparing to stand down early amid complaints he went too far in warning of the economic dangers of leaving the EU in order to bolster Remain during the referendum campaign.

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But in his letter to the Chancellor on Monday evening, Mr Carney said he decided to stay on until 2019 because he recognised "the importance to the country of continuity during the UK's Article 50 negotiations".

"While this is considered a welcome sign of stability in exceptionally uncertain times, one has to ask why he is so reluctant to stay on, " Kathleen Brooks, research director at City Index, said.

Ms Brooks said that while the uncertainty caused by Brexit makes it very difficult to forecast Britain's economic health in three years' time, "Carney may still leave the Bank of England at a delicate time for the UK economy, as the Government tries to navigate a smooth exit from the EU".

Howard Archer, chief European and UK economist at IHS Markit, agreed that it would have been ideal if Carney had agreed to stay on through to 2021.

He added: "The likelihood is that the UK economy will be in a very challenging position in mid-2019. Indeed, there have to be very serious doubts as to whether the exit negotiations between the UK and the EU will be completed in two years and there could well be an overshoot."

Mr Archer said there is a "strong case" to have the governor's successor lined up "well in advance" of 2019 in an attempt to dodge potential market instability as Mr Carney's departure looms.