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“Increasingly likely” Sterling would drop further in the event of a Leave vote, warns Bank of England

Thursday, June 16th 2016 - 23:36 UTC
Full article 6 comments
MPC nine members said that a “vote to leave the EU could materially alter the outlook for economic output and inflation”. MPC nine members said that a “vote to leave the EU could materially alter the outlook for economic output and inflation”.
Bank of England said it had contingency measures in place to deal with any fall-out from the referendum result, including the offer of more support to banks Bank of England said it had contingency measures in place to deal with any fall-out from the referendum result, including the offer of more support to banks
Vote-Leave's Andrea Leadsom said: “The Bank's overriding objective is to ensure financial stability. This intervention is designed to do the exact opposite.” Vote-Leave's Andrea Leadsom said: “The Bank's overriding objective is to ensure financial stability. This intervention is designed to do the exact opposite.”

The Bank of England has warned that uncertainty about the EU referendum is the “largest immediate risk” facing global financial markets. The bank said there were “risks of adverse spillovers to the global economy” from the 23 June vote and it was “increasingly likely” that sterling would fall further - perhaps sharply - in the event of a leave vote, the Bank added.

 Vote Leave's Andrea Leadsom said the comments risked financial stability.

Sterling fell throughout the afternoon, down around 1.3% against the dollar to $1.4016, but gained ground in late trading to $1.4152. The pound had fallen against the Euro following the release of May's Monetary Policy Committee (MPC) minutes but was up 0.3% in late trading.

Its nine members said that a “vote to leave the EU could materially alter the outlook for economic output and inflation”.

MPC members said there was growing evidence that UK businesses and consumers were putting off “major economic decisions” ahead of the referendum, with real estate and car purchases delayed, along with business investments.

The Bank said it had contingency measures in place to deal with any fall-out from the referendum result, including the offer of more support to banks and partnerships with other central banks to maintain financial stability.

The warning came as the MPC held interest rates at the historic low of 0.5% for another month.

Vicky Redwood, chief UK economist at Capital Economics, said a vote to leave the EU would probably mean rates staying on hold for some time, while a remain vote may put a rate rise “back onto the agenda before too long”.

Howard Archer, chief European and UK economist at IHS Global Insight, said: “On the increasingly questionable assumption that the UK votes to stay in the EU next Thursday, we expect the Bank of England's eventual next move will be to raise interest rates from 0.5% to 0.75% - but not until May 2017.”

Vote Leave's Andrea Leadsom told BBC Radio 4: “[The Bank's] overriding objective is to ensure financial stability. This intervention is designed to do the exact opposite.”

“What the Bank of England is doing is rather than saying we have the tools at our disposal to be able to deal with any eventuality, they are instead going along with those forecasts that say there will be some kind of meltdown and there just is not the evidence for that,” she added.

Earlier, Bank of England governor Mark Carney hit back at critics in the Vote Leave campaign who had warned him about commenting on the Referendum.

Categories: Economy, Politics, International.

Top Comments

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  • Voice

    The UK will be either in or out....
    Either way it's not the end of the world as we know it....
    Everyone is over reacting....
    People should vote based on how it will affect themselves and not listen to this scaremongering...

    Jun 17th, 2016 - 01:05 am 0
  • Skip

    Markets and currencies go up and down for a myriad of reasons. There seems to be this meme that it will be a permanent drop should Brexit happen.

    Jun 17th, 2016 - 08:44 am 0
  • ChrisR

    If the headless chickens who bet on the money market think they will lose money short term there will be a drop in the value of Sterling.

    However, the headless chickens make their money out of buying on dips and selling on 'highs', even a few cents movement will bring them racing back.

    I predicted some time ago that Sterling would be down to 1.4, it's almost there.

    Give it six months after a LEAVE win and it will be back above 1.5.

    IF the remain win I think it likely it will stay more of less where it is then, why would it move, what could possibly make it move when the likelihood is that the Euro will be forced onto the UK? This tome the UK government could not claim the public did not want if: they voted for the EU and ALL that means.

    The EU will be 17% behind the rest of the world (after 10 years) according to their own economists. That alone is a damn good reason to VOTE LEAVE!

    Jun 17th, 2016 - 06:01 pm 0
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