Bank of England Sidelined Waiting for Referendum - Danske
Today the Bank of England, as expected kept rates and the asset purchase
program unchanged. According to analysts from Danske Bank, the BoE will
not do anything ahead of June 23 Brexit referendum.
“As expected, the Bank of England's (BoE) policy decisions kept both the Bank Rate and stock of purchased assets unchanged at 0.50% and GBP375bn, respectively. Both votes were unanimous (9-0). Some of the initial GBP appreciation is likely linked to some speculation about whether one member would vote for an immediate cut. As we argued after the latest BoE meeting in April, the BoE will not do anything ahead of the EU referendum as it says that the '[...] underlying economic momentum [is] harder to interpret at present'.
“Today's focus was on references in the minutes, Inflation Report and/or press conference to the UK's upcoming EU in/out referendum. The BoE repeated that the uncertainty related to a Brexit is weighing on the economic activity ahead of the referendum day which explains why it has lowered its expectations of Q2 growth to 0.3% q/q from 0.5% q/q.”
“BoE reiterated that a Brexit 'could materially affect the outlook for output and inflation'. In line with our view, the central bank says that higher uncertainty about UK-EU trading relationships could slow consumption growth, lead to falling investments and hit the labour market through lower employment. It is also likely that GBP will depreciate, 'perhaps sharply'. In the subsequent press conference, Carney even said that the UK probably faces a recession in the short term in case of a Brexit. Carney declined to comment on the long-term economic impact of a Brexit.”
“Overall, the market reaction was limited, although we saw a slightly stronger GBP. Markets price in a 36% probability of a BoE cut before year-end 2016.”