BoE may re-enter Brexit debate with interest rates decision

BoE governor Mark Carney
BoE governor Mark Carney

The Bank of England could be set to re-enter the Brexit debate this week as it releases its final decision on interest rates before Britain’s referendum on EU membership.

The Bank, which has already warned about Brexit, is not bound by purdah rules restricting civil servants from publishing material relating to the vote. As such, it may continue to sound the alarm over a British exit from the European Union as part of Thursday’s announcement on the cost of borrowing.

Analyst Chris Hare of Investec said the Bank will have licence to wade back into the EU debate if the referendum is seen to hamper attempts to hit its inflation target.

He said: “Governor Carney has indicated that the Monetary Policy Committee will not hold back from flagging issues, including the referendum, if they are ‘relevant to the achievement of the inflation target’”.

The Bank, which is expected to vote unanimously to keep rates on hold at 0.5%, warned last month that a Brexit vote could trigger a ‘’technical recession’’ in the UK.

Mr Carney said a recession - two quarters in a row of falling output - was one of the possible outcomes from a Brexit vote, but that the Bank had not compiled formal forecasts.

In its latest quarterly inflation report, the Bank said a vote to leave the EU could ‘’materially’’ hit growth and cause the pound to fall ‘’sharply’’, seeing inflation spike higher, while the economy would suffer as households and businesses rein in spending.

It also cut its UK growth forecasts to 2% in 2016, 2.3% in 2017 and 2.3% in 2018.

UK economic growth slowed to 0.4% in the first three months of 2016, down from 0.6% in the fourth quarter of last year, following an industrial sector slump.

And a recent flurry of gloomy reports suggests activity has pulled back sharply since then due to Brexit fears.