May 17, 2019 / 1:49 PM / 3 days ago

Britain raised FX warchest ahead of first Brexit deadline

LONDON (Reuters) - Britain ramped up its foreign currency reserves in the last quarter of 2018 at a faster pace than any other major country, ahead of its original March 29 deadline to leave the European Union, according to data from the International Monetary Fund.

FILE PHOTO: A two Euro coin is pictured next to a one Pound coin on top of a portrait of Britain's Queen Elizabeth in this file photo illustration shot March 16, 2016. REUTERS/Phil Noble/Illustration/File Photo

The reserves jumped by 19 percent, or $23.2 billion, to $137.31 billion, the highest since 1998, according to Refinitiv Eikon data, although they have subsequently fallen back to stand at $119.44 billion as of April.

U.S. reserves, by comparison, were little changed in the last quarter of 2018, while those held by the Swiss Central Bank declined marginally. A distant second was the Turkish central bank, which has been grappling with a weaker lira currency and whose foreign exchange reserves rose by less than 10%.

Britain was due to leave the EU on March 29, before that deadline was eventually extended to Oct. 31. London has still not sealed a withdrawal agreement, raising the prospect of a disorderly break with the world’s biggest trading bloc that could disrupt business and trade.

“We believe there has been a concerted effort by the UK authorities to raise liquidity buffers toward the end of 2018 to counteract the rising risks of a no-deal scenario that were building at the time,” Bank of America Merrill Lynch analysts Kamal Sharma and Sebastian Cross said in a note.

Citing European Central Bank data, they said the bulk of the build up in UK currency reserves was in euros, and that the 19 percent increase was the biggest rise in UK reserves since 2000.

“The orderly functioning of FX markets is critical to the economy, and we always stand ready to support this, but as you would expect we can’t comment on specific actions we may or may not take,” a UK Treasury spokesman said.

On Friday, the pound dropped to a four month low of $1.2737. [GBP/]

The quarterly IMF report on the composition of official foreign exchange reserves offers a glimpse into what the world’s top holders of foreign currencies are doing with their reserves.

While reserves managers are usually slower than other investors to switch between currencies, their behaviour can also give a clue to future exchange rate moves.

Reporting by Saikat Chatterjee and Andy Bruce; Editing by Mark Potter

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