Bank of England warns again on Brexit, holds rate

The Bank of England on Thursday warned that Britain`s EU referendum next week was potentially the "largest risk" for world markets.

AFP| Last Updated: Jun 16, 2016, 17:56 PM IST
Bank of England warns again on Brexit, holds rate

London: The Bank of England on Thursday warned that Britain`s EU referendum next week was potentially the "largest risk" for world markets.

"The outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets," read minutes from the BoE`s June meeting in which it decided to keep the central bank`s main interest rate at 0.5 percent.

"Were the UK to vote to leave the EU, sterling`s exchange rate would fall further, perhaps sharply," the minutes added.

The bank`s rate-setting Monetary Policy Committee (MPC) also voted in favour of maintaining the amount of its cash stimulus pumping around the economy.

The BoE has consistently warned in recent months over the potential impact of Britain`s looming in-out EU membership on June 23.

The central bank repeated its view Thursday that a so-called Brexit vote could lead to a "materially lower" outlook for economic growth.

"As the committee set out last month, the most significant risks to the MPC`s forecast concern the referendum," the minutes added.

"A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy."

The institution also warned of increasing evidence over the impact of uncertainty arising from the crucial vote, as two new opinion polls showed the `Leave` campaign ahead with one week to go.

Official data Thursday showed that British retail sales jumped by a stronger-than-expected 0.9 percent in May -- indicating robust spending despite economic worries triggered by the referendum.

"While consumer spending has been solid, there is growing evidence that uncertainty about the referendum is leading to delays to major economic decisions that are costly to reverse, including commercial and residential real estate transactions, car purchases, and business investment," the BoE said.

"As the committee has previously noted, potential referendum effects are making economic data releases more difficult to interpret, and the committee is being more cautious in drawing inferences from them than would normally be the case."

Earlier on Thursday, the pound reached a near two-month low against the euro, but moved into positive territory following the BoE decision.

Bank of England governor Mark Carney is among a raft of economists and senior figures from international organisations such as the IMF to have warned of the economic risks of a Brexit.

But in a letter to The Daily Telegraph newspaper, two former British finance ministers and two former Conservative Party leaders accused Carney of peddling "scare stories".