Brexit likely to send pound plunging, warns BoE as rates stay on hold

There has been controversy over the role of the BoE during the Brexit debate but Governor Mark Carney has strongly defended its position
There has been controversy over the role of the BoE during the Brexit debate but Governor Mark Carney has strongly defended its position

The Bank of England has warned it is “increasingly probable” that Brexit would send the pound plunging.

It added that referendum uncertainty is already hitting the housing market as Britons put spending decisions on hold.

Policymakers sounded the alarm once more over the impact on the economy of a vote to leave the EU as they said uncertainty caused by the referendum was seeing delays in “major economic decisions” among households and in the corporate sector.

This is sparking a slowdown in the sale of houses and cars, while, in the corporate sector, commercial real estate transactions and deals are being put on ice, according to the Bank.

The Bank added that the result of the June 23 poll remained the “largest immediate risk” facing financial markets, not just in the UK, but worldwide.

All nine-members of the Monetary Policy Committee (MPC) voted to keep interest rates on hold at 0.5%, where they have been since March 2009.

In the minutes of the decision, the Bank reiterated warnings that a Brexit vote could lead to a “materially lower” growth outlook and ramp up inflation as the pound was likely to plunge in value.

The Bank added that recent volatility in the pound following polls which suggested the Vote Leave campaign was taking the lead, meant it was “increasingly probable” that sterling could suffer a sharp fall in the event of a Brexit.

The pound hit two-month lows against the euro and US dollar earlier this week, while the FTSE 100 Index in London has plunged below 6,000 for the first time in four months.

The latest warning sees the Bank wade back into the referendum debate just a week before the vote takes place.

Mr Carney has already warned that a Brexit could trigger a recession in the UK - two quarters of falling output in a row - which has infuriated Vote Leave campaigners.

And the governor was forced to defend the Bank’s right to comment on the referendum ahead of Thursday’s decision after Vote Leave campaign director Bernard Jenkin wrote a letter on Monday claiming the Bank had to abide by purdah rules banning it from making public comments in the run-up to the vote.

In a three-page response, Mr Carney reportedly said the letter “demonstrates a fundamental misunderstanding of central bank independence” and that it is the Bank’s “duty” to report “evidence-based judgments”.

A rate rise now seems to be firmly off the cards for the rest of 2016 at least and there is mounting speculation over the possibility of a rate cut should the British public vote to leave the EU.