There were no surprises today as the Bank of England chose to keep its base rate consistent at 0.50 per cent.
The freeze had been widely predicted with nerves jangling one week ahead of voters going to the polls to determine whether or not the UK will remain part of the European Union. The real question surrounding the release was whether or not the Bank of England would choose to stoke the Brexit fear flames in its minutes.
Here is what the Bank of England wrote:
“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. Through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy. At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply. This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May Inflation Report. In such circumstances, the MPC would face a trade-off between stabilising inflation on the one hand and output and employment on the other. The implications for the direction of monetary policy will depend on the relative magnitudes of the demand, supply and exchange rate effects. The MPC will take whatever action is needed, following the outcome of the referendum, to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon.
“Against that backdrop, at its meeting on 15 June, the MPC voted unanimously to maintain Bank Rate at 0.5% and to maintain the stock of purchased assets, financed by the issuance of central bank reserves, at £375 billion.”
The Governor of the Bank of England Mark Carney had earlier come under fire from pro-Brexit MPs for being vocal in his view that the UK leaving the EU would be harmful for the economy.
Bernard Jenkin, a Conservative MP and chair of the Commons public administration and constitutional affairs committee, had written to Carney citing ‘purdah’ rules in an effort to silence him during the run-up to the referendum stating: “You are prohibited from making any public comment, or doing anything which could be construed as taking part in the referendum debate.”
According to the BBC’s Kamal Ahmed, the letter was viewed as a “threat” by the Bank with Carney penning a robust reply stating that he had not wished to express personal views on the referendum but that the Bank had a duty to present its “evidence-based arguments”.
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