Bank of England governor Mark Carney said yesterday that a hit to Britain’s economy from last month’s decision by voters to leave the European Union could prompt the bank to act, hinting again that more stimulus is on the way.
“If the outlook has worsened, to use that term, in the judgment of the MPC there always could be monetary response if that is consistent with its remit,” Carney told MPs.
Carney and his fellow members of the bank’s Monetary Policy Committee, who have previously warned of a material hit to Britain’s economy from a Brexit vote, are meeting this week, meaning they are not supposed to talk about the outlook for interest rates in detail.
The bank is due to announce whether it has cut rates or taken other action tomorrow.
Carney has previously given a more explicit signal that the bank will act to cushion the impact of the vote. A week after the June 23 referendum, he said he expected the bank to pump more stimulus into the economy over the summer.
The sterling, which hit a one-week high against the US dollar earlier yesterday buoyed by the quicker-than-expected appointment of a new British Prime Minister, added to its gains as Carney and other BoE officials spoke yesterday.
Investors expect the bank to cut interest rates below their already record low of 0.5 per cent as soon as tomorrow. However, many economists have said the bank might wait until its next policy announcement on August 4 when it will have a better sense of the impact of the Leave decision on the economy.
Investors expect the Bank to cut interest rates below their already record low of 0.5 per cent as soon as tomorrow
Sam Hill, an economist with RBC Capital Markets, said he believed Carney’s comment, within the limits of what he can say immediately before a policy announcement, was in line with his previous steer about further stimulus soon. “I don’t discern a change in stance from the speech,” Hill said.
Carney also said yesterday that some of the pre-referendum criticism of the bank, for its decision to spell out the economic risks of leaving the EU, had been “extraordinary in all senses of the word”.
He denied being influenced by Chancellor George Osborne, one of the leaders of the Remain campaign, and said he did not decide in advance what position the bank’s most important policymaking committees should take on the vote which resulted in a decision to leave the bloc.
“I did not prejudge the minds of those policy committees, nor could I. That’s not the way the system works, that is not the way the system is set up,” he said.
Before the referendum, the bank said a Brexit vote could cause a material slowdown in the economy. Carney said in May there was a chance of a recession, angering some leading Leave supporters. One pro-Brexit lawmaker called on him to resign although senior Leave campaigners quickly sought to defuse the tensions after the vote.
The chief investment officer of BlackRock, the world’s largest asset manager, said yesterday that Britain will fall into recession over the coming year.
In his appearance in parliament, Carney said it remained to be seen whether the bank’s decision to reduce a capital burden on banks and encourage lending would be met with increased demand for loans from businesses and households.
“It won’t be supply constrained, it won’t be a credit crunch, it will be a function of the overall economic outlook, which will be determined by decisions away from the financial sector,” he said.