Bank of England finally step into the Brexit debate, rates unchanged - ING

Bank of England finally step into the Brexit debate, rates unchanged - ING

17 March 2016, 16:57
Vasilii Apostolidi
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James Knightley, Research Analyst at ING, notes that the Bank of England voted unanimously to leave Bank Rate at 0.5% and the size of the asset purchase facility at £375bn.


“The accompanying statement and minutes suggest that the MPC remain upbeat on the UK’s economic prospects, describing private sector demand as “solid” while tighter labour markets and improving productivity will “support real incomes and consumption”. Inflation is subdued though and there is no pressure to tighten monetary policy, especially given external weakness – “global growth risks lie to the downside” - and the “increased uncertainty” being generated by the UK’s forthcoming referendum regarding ongoing membership of the European Union.

It is very interesting that the BoE have decided to finally express a view on Brexit with ”Leave” campaigners likely to be up in arms that they have come off the fence. The BoE acknowledge that the Brexit vote has weighed on sterling and may “also delay some spending decisions and depress growth of aggregate demand in the near term”. This is nothing more than stating the obvious, but it could be the first step into what could become a more concerted campaign to highlight the economic risks.

Our house view remains that if the UK votes to stay in the EU we will see the delayed hiring and investment plans being implemented in 2H16. Given the underlying strength of the economy and rising medium term inflation pressures we still think a November rate hike is possible. However, should the UK vote to leave the next move is likely to be a rate cut as policy makers try to shore-up confidence.”

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