The vote to Leave and monetary policy: The implications of Brexit for the Bank of England

Posted: June 24, 2016 in economy
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The vote to Leave and monetary policy

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Britain faces months of economic uncertainty

WHAT does Britain’s vote to leave the European Union mean for interest rates? Two things seem likely: the Bank of England will plump for looser monetary policy to cope with the coming economic slowdown and Mark Carney, its governor, may soon depart.
At first glance it might seem inevitable that rates will be increased from their current historical low of 0.5%. After all, following the sharp depreciation of the pound, imports will become more expensive, pushing up inflation—perhaps above the bank’s 2% target. Higher interest rates may also help sterling to recover. The central bank has typically “looked through” this sort of inflation in the past, however, seeing it as a temporary phenomenon (think of how it treated the fall in oil prices from 2014 onwards). Moreover, the economy will be in desperate need of some sort of stimulus.

With the base rate already so low, cutting it much further is …

via Economic Crisis http://ift.tt/292hp5e

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