The Bank of Englandhas
issued a fresh warning that a vote to leave the EU in next week’s
referendum risks knocking economic growth, pushing the pound sharply
lower and sending shockwaves through the global economy.
Against the backdrop of jittery financial markets, the Bank alsorevealed its top policymakers had been briefed by staff on contingency planning for the referendum as it readies measures to prevent markets seizing up in the event of a leave vote next week.
Announcing its decision to keep interest rates at their record low of 0.5%, the Bank said the referendum on 23 June was the biggest immediate risk to UK financial markets, and perhaps those overseas, and that the current uncertainty was already denting spending. The pound has weakened in the run-up to the vote as opinion polls have pointed to a lead forthe leave vote and the Bank warned in minutes to its latest rate-setting meeting that it would fall further in the event of Brexit.
“The outcome of the referendum continued to be the largest immediate risk facing UK financial markets, and possibly global financial markets,” said the minutes. In addition: “On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EUsterling’s exchange rate would fall further, perhaps sharply.”
The minutes also noted recent comments on potential Brexit risks to global financial markets made by the US central bank as it left interest rates there on hold this week. The record of the Bank’s finalm rate-setting meeting before the referendum showed all nine members of the monetary policy committee (MPC) voted unanimously to keep interest rates at 0.5%. That was as expected by financial markets and economists,given the impending vote.
The minutes said the MPC had been briefed on contingency planning for the referendum, including on the “more intensive supervision by the Prudential Regulation Authority of major financial institutions to ensure they had sufficient liquidity”.
The Bank said in the minutes that it was “well placed to address liquidity needs and support the functioning of financial markets”. In the minutes, policymakers noted a pick-up in uncertainty ahead of the vote, which could knock economic growth.
“The main focus of the committee’s policy discussion this monthconcerned the difficulty in identifying the underlying momentum in the domestic economy, amidst the influence on activity of uncertaintyrelated to the EU referendum,” the minutes said.
“Measures of uncertainty had increased further over the past month, with the UK a clear outlier internationally. And there had been growing evidence that uncertainty about the outcome of the referendum was leading to delays to major economic decisions that were costly or difficult to reverse.”
There had been a “sharp decline” in the value of commercial real estate transactions and in merger and acquisition (M&A) activity and reports of delayed business investment, the Bank said, echoing some private sector reports of spending decisions being deferred. The Bank also noted some possible influence oconsumer spending.
Regarding households, both car purchases and residential housing activity had declined, although it was difficult to isolate the extent to which these effects related to the referendum or a more general underlying slowing,” the minutes said. But the Bank added retail sales had been stronger than expected in April and that confidence indicators, as a whole, “remained healthy”.
Interest rates have been on hold at a record low of 0.5% for more than seven yearsExpectations of when rates might start to rise back to more normal levels have been shifted back amid signs the economy may have slowed recently. Some policymakers and economists have even discussed the prospect of interest rates being cut further. In the near-term much will depend on the referendum and market reaction to the outcome.
Read more: Bank of England: economy will be hit hard if Britain leaves EU | Business | The Guardian
Against the backdrop of jittery financial markets, the Bank alsorevealed its top policymakers had been briefed by staff on contingency planning for the referendum as it readies measures to prevent markets seizing up in the event of a leave vote next week.
Announcing its decision to keep interest rates at their record low of 0.5%, the Bank said the referendum on 23 June was the biggest immediate risk to UK financial markets, and perhaps those overseas, and that the current uncertainty was already denting spending. The pound has weakened in the run-up to the vote as opinion polls have pointed to a lead forthe leave vote and the Bank warned in minutes to its latest rate-setting meeting that it would fall further in the event of Brexit.
“The outcome of the referendum continued to be the largest immediate risk facing UK financial markets, and possibly global financial markets,” said the minutes. In addition: “On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EUsterling’s exchange rate would fall further, perhaps sharply.”
The minutes also noted recent comments on potential Brexit risks to global financial markets made by the US central bank as it left interest rates there on hold this week. The record of the Bank’s finalm rate-setting meeting before the referendum showed all nine members of the monetary policy committee (MPC) voted unanimously to keep interest rates at 0.5%. That was as expected by financial markets and economists,given the impending vote.
The minutes said the MPC had been briefed on contingency planning for the referendum, including on the “more intensive supervision by the Prudential Regulation Authority of major financial institutions to ensure they had sufficient liquidity”.
The Bank said in the minutes that it was “well placed to address liquidity needs and support the functioning of financial markets”. In the minutes, policymakers noted a pick-up in uncertainty ahead of the vote, which could knock economic growth.
“The main focus of the committee’s policy discussion this monthconcerned the difficulty in identifying the underlying momentum in the domestic economy, amidst the influence on activity of uncertaintyrelated to the EU referendum,” the minutes said.
“Measures of uncertainty had increased further over the past month, with the UK a clear outlier internationally. And there had been growing evidence that uncertainty about the outcome of the referendum was leading to delays to major economic decisions that were costly or difficult to reverse.”
There had been a “sharp decline” in the value of commercial real estate transactions and in merger and acquisition (M&A) activity and reports of delayed business investment, the Bank said, echoing some private sector reports of spending decisions being deferred. The Bank also noted some possible influence oconsumer spending.
Regarding households, both car purchases and residential housing activity had declined, although it was difficult to isolate the extent to which these effects related to the referendum or a more general underlying slowing,” the minutes said. But the Bank added retail sales had been stronger than expected in April and that confidence indicators, as a whole, “remained healthy”.
Interest rates have been on hold at a record low of 0.5% for more than seven yearsExpectations of when rates might start to rise back to more normal levels have been shifted back amid signs the economy may have slowed recently. Some policymakers and economists have even discussed the prospect of interest rates being cut further. In the near-term much will depend on the referendum and market reaction to the outcome.
Read more: Bank of England: economy will be hit hard if Britain leaves EU | Business | The Guardian
