Carney briefly lifts sterling before Brexit fears halt rally

LONDON (Reuters) - The pound rose to a seven-day high on Thursday after Bank of England Governor Mark Carney said he was confident an economic slowdown was temporary, but the gains were short-lived before a government meeting on Brexit policy.

FILE PHOTO: A British Pound Sterling note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

Prime Minister Theresa May will propose on Friday a new plan to ease trade and offer Britain more freedom to set import tariffs, a last-ditch attempt to unite her government on plans for leaving the European Union.

With less than nine months until Britain exits the bloc and no trade agreement secured, there is concern that the meeting risks undermining the stability of May’s government.

Those concerns continue to weigh heavily on the pound, despite some better-than-expected economic news.

“The pound has failed to benefit so far from the improving cyclical momentum in the UK. Heightened Brexit uncertainty appears to be holding back (its) upside potential the near term,” analysts at MUFG said.

After a feeble start to 2018, the British economy is showing tentative signs of a recovery with surveys for the manufacturing, construction and services sectors this week beating expectations.

That has brought some respite for sterling after weeks of losses driven by a strong dollar and worries about whether Britain can secure a trade deal with the EU.

The pound rose to an intraday high of $1.3275 on Thursday after Carney said inflation was rising towards target and that he was confident the slowdown was temporary.

Carney said the central bank was doing everything it could to prepare for the very unlikely event of a cliff-edge Brexit, but that the EU needed to do more.

His comments did little to lift sterling against the euro, however, and the pound slid 0.4 percent to 88.47 pence against a broadly stronger euro.

The common currency was lifted by strong German industrial data and a Bloomberg report that some European Central Bank members viewed end-2019 as too late for an interest rate rise.

Nomura said in a note that even if May comes up with a credible Brexit plan, it is far from clear whether it would be “workable” and accepted by EU members.

Britain’s biggest carmaker Jaguar Land Rover [TAMOJL.UL] joined a growing list of UK company warnings, saying a “hard Brexit” - one without a trade deal - would cost it 1.2 billion pounds ($1.6 billion) a year.

Reporting by Tom Finn and Tommy Wilkes; Editing by Alison Williams, John Stonestreet and David Stamp