BOE Minutes Show Brexit Fears Affecting Investment

A vote to leave the EU could harm economic growth and have a serious impact on the pound and other UK assets, the Bank of England has said, as it took steps to prepare for June’s referendum.

Minutes to the Bank’s latest policy meeting showed its nine-strong monetary policy committee voted unanimously to leave interest rates at their historic low of 0.5%. The committee said uncertainty ahead of what was expected to be a close EU vote appeared to be weighing on investment decisions, and policymakers said economic growth could slow as a result in the second quarter of the year.

The minutes showed that as the 23 June vote nears, policymakers discussed the likely implications for monetary policy of a vote to leave the EU.

“Such a vote might result in an extended period of uncertainty about the economic outlook, including about the prospects for export growth. This uncertainty would be likely to push down on demand in the short term,” the minutes said.

“A vote to leave could have significant implications for asset prices, in particular the exchange rate. The MPC would have to make careful judgements about the next effects of these potential influences on demand, supply and inflation. Ultimately, monetary policy would be set in order to meet the inflation target, while also ensuring that inflation expectations remained anchored.”

A Reuters poll this week found that 17 of 26 economists thought a vote for Brexit could prompt the Bank to cut interest rates for the first time since the financial crisis.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza