Bank of England left its key interest rate unchanged at its meeting on Thursday and justified expectations of the markets. Nine members of the Committee on Monetary Policy voted unanimously to keep interest rate at a record low of 0.5%. Bank of England stated that since the last inflation report in May there was no news to change its assessment of the global economy. Since then, however, oil prices in pounds have risen by about 10%. Moreover, many financial assets have become more sensitive to market sentiment, especially before a referendum on Britain’s membership of the European Union next week.
Bank of England talks about currency markets and predicted that if the British decide their country out of the European Union, the pound faces a further decline in sharply. This development would be accompanied by dynamics in the fundamental factors, including a deterioration in trade, lower productivity, higher risk premium.
“The vote of the referendum is still the biggest immediate risk to the UK financial markets, and possibly to global financial markets”, says the statement of the bank. “Although consumer spending was stable, there is increasing evidence that the uncertainty surrounding the referendum postponed major economic decisions which, if taken, then difficult and expensive would be changed. These are transactions in commercial and residential real estate, purchases of cars and business investment”, says the text.
Bank of England stressed that the forecasts in May were made under the assumption that Britain left the EU. In any case, the British central bankers hardened his tone before the vote June 23rd. Eventually leaving the country would lead to slower growth, rising inflation and rising unemployment.
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