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Carney issues a warning as interest rates are held

By Staff Reporter

Published 15/04/2016

Governor of the Bank of England, Mark Carney
Governor of the Bank of England, Mark Carney

The Bank of England warned a Brexit vote could hurt the economy and "push down on demand" as it kept the cost of borrowing on hold once more.

Members of the Bank's Monetary Policy Committee (MPC) said the economy may face "an extended period of uncertainty", as they considered the "likely implication for monetary policy" if Britain left the European Union.

The comments came as all nine policymakers on the MPC voted to leave rates at 0.5% - where they have remained since March 2009 - and keep its quantitative easing programme on hold at £375bn.

Minutes of the meeting showed the MPC also stood by its stance that the next move for rates would be a rise rather than a cut, stating: "It is more likely than not that the Bank rate will need to increase over the forecast period."

The MPC added there was evidence to suggest that uncertainty surrounding the EU referendum decision was already hampering activity.

It said: "There are some signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity, as some decisions, including in capital expenditure and commercial property transactions, are being postponed pending the outcome of the vote."

"This might lead to some softening in growth during the first half of 2016."

The MPC said a vote for Britain to leave the European Union might lead to uncertainty surrounding export growth, while also weighing on demand in the short term.

The comments came after the MPC warned last month that uncertainty over the EU vote could hit the UK economy.

But the MPC gave no clues as to how it might adjust monetary policy if Britain headed for the European exit door.

It comes after the International Monetary Fund (IMF) downgraded its forecast for UK economic growth earlier this week over fears of disruption if the UK votes to leave the EU on June 23.

The IMF scaled back its projection of UK economic growth for 2016 by 0.3 percentage points to 1.9% - marginally below the 2% forecast of the Government's Office for Budget Responsibility. But it also held its forecast for 2017 at 2.2%.

Experts are predicting interest rates to stay at 0.5% until 2017, although some believe that a rate rise might come even sooner should Britain vote to stay in the EU.

The Bank has been in no hurry to raise rates, with inflation remaining historically low and way off the Government's 2% target.

Bank of England governor Mark Carney (left) told MPs last month that the EU referendum was the main homegrown threat to economic stability.

Belfast Telegraph

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