Investment Clock insights

Bank to wait for referendum uncertainty to clear

Ian Kernohan

16 June 2016

There was zero chance that the Bank of England (BoE) would change policy today, but it will be interesting to see how they respond to the result of next week's EU referendum. While inflation remains well below target, most of the other data for the second quarter has been quite robust, including yesterday's labour market report, which showed the unemployment rate at a new post crisis low and wage growth picking up. This news is certainly not consistent with City expectations of a significant slowdown ahead of the referendum. A Remain vote would remove a great deal of uncertainty hanging over the economy and allow the BoE to bring expectations of a rate hike forward. In the event of a vote to Leave, I expect the Bank would cut rates, in order to shore up confidence, in the face of what would be a sharp spike in uncertainty.

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