MPC says economic activity on hold pending EU vote outcome
THE Bank of England warned a Brexit vote could hurt the economy and “push down on demand” as it kept the cost of borrowing on hold once more.
Members of the Bank’s Monetary Policy Committee, headed by Bank of England governor Mark Carney, said the economy may face “an extended period of uncertainty” as it considered the “likely implication for monetary policy” if Britain left the European Union.
The comments came as all nine policymakers on the MPC voted to leave rates at 0.5 per cent – where they have remained since March 2009 – and keep its quantitative easing programme on hold at £375 billion.
Minutes showed the MPC also stood by its stance that the next move for rates would be a rise rather than a cut, stating: “it is more likely than not that the Bank rate will need to increase over the forecast period”.
The MPC said there was evidence to suggest that uncertainty surrounding the EU referendum decision was already hampering economic activity.
It said: “There are some signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity, as some decisions, including in capital expenditure and commercial property transactions, are being postponed pending the outcome of the vote.”
“This might lead to some softening in growth during the first half of 2016,” the minutes added.
The MPC said a vote for Britain to leave the EU might lead to uncertainty surrounding export growth, while also weighing on demand in the short term.
The comments come after the MPC warned last month that uncertainty over the EU vote could hit the UK economy.
But the MPC gave no clues as to how it might adjust monetary policy if Britain headed for the European exit door.
Chief UK economist at Pantheon Macroeconomics, Samuel Tombs, said the Bank was still holding fire on its decision to raise rates until after the EU referendum, likely with a vote to remain.
“The committee still is in ‘wait and see’ mode,” he said. “We continue to think that inflation will surprise to the upside later this year and throughout 2017, compelling the MPC to raise interest rates at least once before the end of this year.”