The Bank of England has warned for the first time that Britain could slide into recession in the aftermath of a vote to leave the EU in next month’s referendum.
Governor Mark Carney also warned Brexit could knock the pound sharply lower, stoke inflation and raise unemployment. That would leave the Bank with a difficult balancing act as it decides whether to cut, hold or raise interest rates to counter opposing forces, Carney added.
He said there were a range of possible scenarios for the economy in the event of Brexit and these “could possibly include a technical recession” – defined as two consecutive quarters of shrinking GDP.
“A vote to leave the EU could have material economic effects – on the exchange rate, on demand and on the economy’s supply potential – that could affect the appropriate setting of monetary policy,” Carney told a news conference.
He was speaking as the Bank released its latest forecasts for the economy showing a softer outlook for growth and as it announced a decision to hold interest rates at their record low of 0.5%. With the 23 June referendum clouding the economic outlook, all nine of the Bank’s interest rate setting committee agreed borrowing costs should be left on hold.
Against the backdrop of tight opinion polls, the Bank described the referendum on EU membership as “the most immediate and significant risk” for the UK’s economic outlook.
Minutes from the committee’s meeting showed it discussed the implications of both a vote to remain in the EU – seen as the more likely outcome based on current polls – and a vote to leave. It was the Bank’s most detailed assessment yet of potential Brexit effects.
The Bank warned a vote to leave the EU could:
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Push the pound lower, “perhaps sharply”.
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Prompt households and businesses to delay spending.
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Increase unemployment.
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Hit economic growth.
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Stoke inflation.
Full article on The Guardian
Inflation report
Monetary Policy Committee minutes
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