The Bank of England’s decision to keep interest rates pegged at 0.5 per cent won’t surprise anyone. What is more interesting, after today’s row involving Mark Carney, is how much the Bank had to say about the EU referendum. Brexiteers hoping Mark Carney and the BoE’s Monetary Policy Committee would keep quiet about next week’s vote will be disappointed. In its meeting minutes, the MPC gives it both barrels when warning about the dangers of Brexit. The MPC says a vote to leave would send sterling’s exchange rate tumbling. It goes on to add that:
‘As the Committee set out last month, the most significant risks to the MPC’s forecast concern the referendum. A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise.’
But the Bank of England doesn’t stop there. It also warns Britain might not be the only country affected, saying there could be ‘adverse spill-overs to the global economy’. Although the warnings will make the headlines, when you scratch beneath the surface of the MPC’s summary, Brexit isn’t all doom and gloom it seems. The Bank says that leaving the EU could contribute to a ‘materially lower path for growth’. Or to put it another way, growth would be slightly less for Britain’s economy after Brexit but the economy would still grow. It also finishes by saying that the MPC ‘will take whatever action is needed…to ensure that inflation expectations remain well anchored’, whatever the outcome of the referendum. In other words, we’re up to the task even if Britain does leave the EU.