More Monetary Stimulus on Deck for UK, But Officials Moving Cautiously Before EU Exit Vote

This article was submitted by Joel Bauman, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.

In light of the economic malaise around the United Kingdom, the Bank of England may be releasing additional monetary stimulus in the near future. They will do this in response to increased unemployment rates and lack of private investing.

But the BoE is waiting on a June 23 referendum in which Britain and will decide whether or not to leave the European Union before taking action. The BoE is worried about the possible negative economic consequences this decision will have on its economy. Businesses have already been putting investments on hold until after the vote is has been decided. Mark Carney, the governor of the bank of England and Chairman of the Monetary Policy Committee (MPC), said the pending vote on what has become known as Brexit is weighing on growth and clouding the economic outlook.

The MPC voted to hold interest rates at a record-low 0.5% for the time being at its meeting Thursday.

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Carney may consider increasing bond purchases down the road. The BoE is looking for a way to offset any adverse consequences from the referendum decision, and one way to do this is by expanding its current 375 billion GBP bond purchase program. This would simultaneously push down interest rates – piling on to a global trend that has seen rates go negative for many central banks.

We may also see more poor economic GDP forecasts for the UK through the rest of 2016. Officials cut their second quarter GDP forecast to 0.3%, down from 0.5%. The GBP inflation rate was forecast to barely overshoot its 2% target over the next few years. This forecast inflation rate will increase if the BoE proceeds with more bond purchases.

During the followup post conference after the meeting, Carney answered questions about the impact of a vote to leave the EU. In a previous meeting he said an exit may be the biggest domestic risk to Britain’s financial stability, and the BoE has said the UK has benefited from the membership with the EU. He maintained that tone today.

“If there were a vote to leave, there would be a material impact on growth and demand, and unemployment.”

When asked if materially lower growth could mean a recession, Carney said there were a range of views within the forecasts, but conceded “It could possibly include a technical recession.”

Carney’s comments have attracted critique from lobbyers who want Britain to leave the EU. Former finance minister Nigel Lawson has accused Carney of over-stepping his remit and venturing into politics.

Carney defended his comments saying, “It’s explicitly in statute and our remit to talk about risks and trade offs.”

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