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Monetary Policy Committee warns possibility of EU exit is already damaging Britain's economy

The possibility of British exit from the EU is already damaging the British economy, the Bank of England’s Monetary Policy Committee has said today in their starkest warning of the risks to Britain’s economy of leaving the EU.

 The independent MPC has concluded that “uncertainty about the referendum is leading to delays in major economic decisions” including new car purchases and businesses investment, and is already hitting the value of sterling.
 
The MPC concludes that the possibility of Britain leaving the EU is “the largest immediate risk facing UK financial markets, and possibly also global financial markets”.
 
They say that “past evidence” suggests a vote to leave the EU will increase unemployment. They also say that a vote to leave would likely cause the value of the pound to fall, business investment to fall, inflation to rise, economic growth to fall, asset prices to fall, and the terms of Britain’s global trade to get worse.
 
Commenting, the Prime Minister said:
 
“These are the minutes of the Monetary Police Committee of the Bank of England. These people are independent and their job is to advise us about the risks facing our economy, and they couldn’t be clearer. If we vote to leave the European Union, we are facing higher unemployment, less growth, we’re facing a falling pound, therefore rising prices. The price of the family shop would go up. There would be fewer jobs, fewer opportunities. This is a risk to every family in Britain. This couldn’t be clearer. We shouldn’t risk it.
 
“The Bank of England is independent. It’s independent in law, and the Monetary Policy Committee of the Bank of England has met and has discussed the risks of leaving the European Union and they couldn’t be clearer. People have been waiting for some independent, authoritative information about this referendum. Here it is. The Bank of England, paid to be independent, saying to us that unemployment could rise, growth could be hit, the pound will fall, prices will rise, our economy will suffer, and families will suffer. This is a risk to every family in the country, and we shouldn’t risk it. We should vote to remain.”
 
/ends
 
 
NOTES TO EDITORS:
 
The Bank of England have published the latest minutes of the Monetary Policy Committee here: link
 

  • The Bank of England have warned that sterling is likely to depreciate, and potentially sharply, and unemployment could increase, and we could see lower business investment:

“A vote to leave the European Union could materially affect the outlook for output and inflation. In the face of greater uncertainty about the UK’s trading arrangements, sterling was likely to depreciate further, perhaps sharply. The behaviour of sterling in response to opinion polls over the past month made this seem increasingly probable. Past evidence suggested that a general increase in uncertainty led to households deferring consumption and businesses delaying investment, lowering labour demand and increasing unemployment.
Bank of England MPC Minutes, 16 June 2016, link
 

  • The Bank of England have also warned asset prices may fall, and there could be global spill-over:

Asset prices might fall, leading to tighter financial conditions with further deleterious effects on consumption and investment. Through financial market and confidence channels, there were also risks of adverse spill-overs to the global economy. Slower capital accumulation and the need to reallocate resources across the economy in response to changing trading and investment patterns would be likely to reduce potential supply over the forecast period.”
Bank of England MPC Minutes, 16 June 2016, link
 

  • The Bank of England warn the overall impact could mean a “materially lower path for growth and a notably higher path for inflation”:

“Taken together, the combination of movements in demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the projections set out in the May Inflation Report. In those circumstances, the MPC would face a trade-off between stabilising inflation on the one hand and output and employment on the other. The implications for the direction of monetary policy would depend on the relative magnitudes of the demand, supply and exchange rate effects.”
Bank of England MPC Minutes, 16 June 2016, link
 

  • The Bank of England also warns leaving the EU could mean lower productivity, and increased risk premia which would mean higher mortgage rates for families:

“On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling’s exchange rate would fall further, perhaps sharply. This would be consistent with changes to the fundamentals underpinning the exchange rate,including worsening terms of trade, lower productivity, and higher risk premia. In addition, UK short-term interest rates and measures of UK bank funding costs appear to have been materially influenced by opinion polls about the referendum.”
 

  • The Bank of England has also warned “the outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets.”

“Overall, the outcome of the referendum on EU membership continued to be the largest immediate risk facing UK financial markets, and possibly also global financial markets. According to the Bank of America Merrill Lynch Global Fund Manager Survey, the referendum was considered the biggest tail risk. This was consistent with the Bank’s own market intelligence.”
 

  • The referendum is also reducing consumer spending and business investment:

“While consumer spending has been solid, there is growing evidence thatuncertainty about the referendum is leading to delays to major economic decisions that are costly to reverse, including commercial and residential real estate transactions, car purchases, and business investment.”
Bank of England MPC Minutes, 16 June 2016, link