BoE: Brexit weighing on ‘certain areas’ of economy

The Bank of England’s monetary policy committee (MPC) warned on Thursday that uncertainty around the EU referendum has begun to weigh on “certain areas of activity” in the UK economy.

The MPC of the UK’s central bank said some business decisions “including on capital expenditure and commercial property transactions” are being postponed pending the outcome of the EU referendum vote.

“This might lead to some softening in growth during the first half of 2016,” warned the MPC.

The MPC statement came as it voted unanimously to leave interest rates at 0.5% and maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

The MPC said sterling had depreciated further over the past month and risk-free interest rates in the UK and elsewhere had also declined.

“Together with rises in the prices of many risky assets, these movements should support economic activity,” said the MPC.

“That said, the likelihood that much of the fall in sterling reflects uncertainty surrounding the forthcoming referendum on the United Kingdom’s membership of the European Union raises questions regarding whether the lower level of sterling will persist and its net economic impact.”

The MPC said domestically, growth has been steady, and it continues to expect CPI inflation to rise over the next year and that the pickup in the price of oil and sterling’s recent depreciation will support that rise.

However, the committee warned: “There are some signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity, as some decisions, including on capital expenditure and commercial property transactions, are being postponed pending the outcome of the vote.

“This might lead to some softening in growth during the first half of 2016.”