Carney says action likely in light of Brexit fallout

MARK Carney said the Bank of England (BOE) will probably have to loosen policy within months to deal with the fallout of the Brexit vote as he warned that there is only so much he can do to protect the economy.

In his second televised address since the country voted to leave the EU, the BOE governor said the central bank would not hesitate to act when it came to safeguarding the economy or the resilience of the financial system.

The BOE would also continue its liquidity auctions for banks on a weekly, rather than monthly, basis and consider a “host of other measures”.

“It now seems plausible that uncertainty could remain elevated for some time,” Carney said. “The economic outlook has deteriorated and some monetary policy easing will likely be needed over the summer.”

Any loosening by the BOE would be its first since 2012, when the bank last expanded its asset purchase programme. Its key interest rate has been at a record-low 0.5% since March 2009. Having previously said that was the lower bound, the BOE has since signalled it can go closer to zero, though Carney said officials would keep a close eye on any effect on lenders.

The EU vote has left the economy in limbo regarding its trading relationship with its biggest market and little clarity on when negotiations on a new arrangement will begin. Britain’s shock decision to opt for a Brexit in the June 23 referendum also led to the resignation of Prime Minister David Cameron, sparking a leadership battle, while the opposition Labour Party is in chaos.

Carney said the UK needed a “comprehensive strategy for engaging with EU and the rest of the world”, highlighting trade, migration, capital flows and regulations as key areas.

“Plan beats no plan,” Carney said, quoting former US treasury secretary Tim Geithner.

While flagging that stimulus may be needed for the UK, which could mean actions such as interest-rate cuts or quantitative easing, Carney said this was his view and not that of the nine-member monetary policy committee.

The panel will publish an initial estimate on July 14 and a fuller review in August.