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Bank holds rates but warns over Brexit – again

The Bank of England held rates today at 0.5% but issued a stern warning over Brexit and said pound could fall, ‘perhaps sharply’, if UK votes to leave EU.

In a statement it said: “As the Committee set out last month, the most significant risks to the MPC’s forecast concern the referendum.

“A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise. Through financial market and confidence channels, there are also risks of adverse spill-overs to the global economy.

“At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply.

“This combination of influences on 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 central projections set out in the May Inflation Report.

“In such 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 will depend on the relative magnitudes of the demand, supply and exchange rate effects. The MPC will take whatever action is needed, following the outcome of the referendum, to ensure that inflation expectations remain well anchored and inflation returns to the target over the appropriate horizon.”

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