EU referendum: Bank of England warns In/Out vote is the most significant short-term risk to the UK economy

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The referendum on Britain’s European Union membership poses the most significant short-term risk to the UK economy, the Bank of England has warned.

In a statement today, the Bank’s Financial Policy Committee (FPC) said the outlook for Britain’s financial stability has “deteriorated” since the end of last year, with existing risks “supplemented” by uncertainty in the run-up to the referendum on 23 June.

The FPC noted that referendum-related uncertainty has already hit sterling, but warned that “heightened and prolonged uncertainty” before and after the In/Out vote could lead to even more depreciation of sterling and make financing more expensive for UK borrowers.

The FPC also cautioned that the referendum has the “potential to reinforce existing vulnerabilities for financial stability”, pointing to possible knock-on effects for the UK current account deficit, funding markets and exports.

Today’s statement also pointed to global risks weighing on Britain’s financial stability, including the tightening of monetary policy in the United States, the continued slowdown in emerging markets and widespread falls in the prices of risky assets.

The Bank published the FPC statement paper this morning alongside a new paper from the Prudential Regulation Authority (PRA), which set out new rules to restrict underwriting of buy-to-let mortgages.

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