Bank of England Warns over Post Brexit Economic Crisis
Apr 28, 2016 06:00 PM EDT
The Bank of England (BoE) has warned that Brexit from European Union will probably cause sterling to slide and eventually hurt the country's economy. The warning appears just two days after the International Monetary Fund (IMF) has cautioned that the global economy will suffer due to Brexit. However, the BoE's warning has angered the pro-Brexit campaigners.
EU referendum on June 23 may result in an extended period of uncertainty over the economic outlook including the prospects for export growth. The uncertainty may push down on demand in the short term while exerting significant implications for asset prices, particularly the exchange rate, reports Reuters citing the BoE statement as the source.
Campaigners supporting Brexit have protested the BoE statement and argued that the British central bank has lost its neutrality in the ongoing debate. A pre-referendum opinion poll suggests that neither of the sides is clearly ahead.
Philip Davies, a Conservative MP has criticized the BoE governor for diminishing himself. Earlier, Mark Carney, the BoE governor has described Brexit as the biggest domestic financial stability risk while highlighting the gains from an open trading relationship with the EU. His comments have attracted criticism from pro-Brexit lawmakers, reports Newsweek.
BoE governor now concludes saying a potential Brexit may result in slower growth during the first half of the current year. Banks may move away from the UK due to Brexit and if Britain fails to obtain a satisfactory new deal with Europe in post-Brexit period.
Meanwhile, BoE has decided holding its interest rate at 0.5% for the seventh consecutive years. All members of the Bank's Monetary Policy Committee (MPC) have voted in favor of keeping rates at record low, according to a report published in BBC.
Following announcement of BoE minutes, Pound Sterling has regained its ground while British government bonds have extended losses. The meeting minutes are based on the clearer evidence for effect of the referendum debate on British economy. An astonishing majority of economist have opined that EU referendum will hurt the British economy through Reuters' poll conducted on Wednesday [ECILT/GB].
Prior to the BoE meeting, financial markets have ruled out possibility for a rate increase. Some analysts have even bet for a rate cut. Another Reuters conducted consensus poll among the economists suggests that the first rate hike will take place during the first quarter of 2017 [BOE/INT].
BoE governor considers EU referendum as biggest domestic financial stability risk. Reuters conducted poll on Wednesday among economists also suggests that EU Referendum will dishearten British economic outlook. Following clear support to BoE governor's earlier statement, the British central bank has approached with warning over possible economic crisis during post-Brexit era.