Brexit could cause a prolonged period of instability in the UK economy, dramatically reduce the value of the pound and weaken growth, the Bank of England has warned, as it voted unanimously to hold interest rates at their record low of 0.5 per cent for another month.
The rate-setting Monetary Policy Committee (MPC) made no fewer than 10 references to Brexit in the minutes of its April meeting, published today, in its starkest warning to date about the damage a vote to leave the European Union would do to the UK economy.
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“Such a vote might result in an extended period of uncertainty,” the Bank said, cautioning that exports would be hit, demand would fall and employment prospects would weaken.
“A vote to leave could [also] have significant implications for asset prices, in particular the exchange rate,” the MPC added.
The pound has fallen by 10 per cent against a basket of currencies since November, which the Bank said was down to concerns ahead of the referendum.
All nine members of the MPC voted to keep interest rates at 0.5 per cent - the lowest ever level in the Bank’s 300-year history - where they have now been stuck since March 2009.
The Bank said it believed instability ahead of the vote was already weakening the UK economy.
“There had been many signs that uncertainty relating to the EU referendum had begun to weigh on certain areas of activity, as some decisions, including on capital expenditure and commercial property transactions, are being postponed pending the outcome of the vote.”
The MPC added that uncertainty “might be affecting hiring decisions,” and said that “the fall in commercial property transactions in the first quarter had been particularly striking”.
The Bank concluded that the result of Brexit uncertainty might result in slower growth during the first half of this year, as businesses batten down the hatches until the vote on 23 June.
“This uncertainty would be likely to push down on demand in the short run. Uncertainty regarding the supply side of the economy might also increase, reflecting any alterations to product or labour market regulation, adjustments in labour flows or changes in there rate of technology adoption as a result of different arrangements governing foreign trade and capital flows [that could occur if Britain votes to leave the EU].”
The Bank of England’s Brexit fears: complete list
- Slower growth
- Sterling volatility
- Weaker exports
- Delayed business investment
- Fewer commercial property transactions
- Lower corporate borrowing
- Postponed initial public offerings (IPOs)
- Weaker demand
- Asset price volatility