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| Brexit may worsen unemployment, Bank of England warns | |
| (35 minutes later) | |
| The Bank of England has given its starkest warning yet that a UK vote to leave the EU in the June referendum could lead to higher unemployment and lower growth. | The Bank of England has given its starkest warning yet that a UK vote to leave the EU in the June referendum could lead to higher unemployment and lower growth. |
| Its latest Inflation Report forecasts inflation will reach 0.9% in September, as long as the UK stays in the EU. | Its latest Inflation Report forecasts inflation will reach 0.9% in September, as long as the UK stays in the EU. |
| The report expected that after slowing in the second quarter of the year, growth will pick up in the second half. | The report expected that after slowing in the second quarter of the year, growth will pick up in the second half. |
| It came as the Bank voted unanimously to keep interest rates at 0.5%. | It came as the Bank voted unanimously to keep interest rates at 0.5%. |
| The Bank said that a vote to leave "could lead to a materially lower path for growth and a notably higher path for inflation than in... the report". | The Bank said that a vote to leave "could lead to a materially lower path for growth and a notably higher path for inflation than in... the report". |
| The latest minutes of its interest rate-setting Monetary Policy Committee (MPC) added that a vote to leave the EU could cause sterling to fall "perhaps sharply" and unemployment to rise. | The latest minutes of its interest rate-setting Monetary Policy Committee (MPC) added that a vote to leave the EU could cause sterling to fall "perhaps sharply" and unemployment to rise. |
| The MPC said: "Households could defer consumption and firms delay investment lowering labour demand and causing unemployment to rise." | The MPC said: "Households could defer consumption and firms delay investment lowering labour demand and causing unemployment to rise." |
| It added that interest rate policy would depend "on the relative magnitudes of the demand, supply and exchange rate effects". | It added that interest rate policy would depend "on the relative magnitudes of the demand, supply and exchange rate effects". |
| It said that a lower exchange rate might boost trade, but would be "unlikely to offset the drag on activity from increased uncertainty and and tighter financial conditions". | It said that a lower exchange rate might boost trade, but would be "unlikely to offset the drag on activity from increased uncertainty and and tighter financial conditions". |
| However, it noted that the MPC would face the difficult choice of raising rates to control inflation or lowering them to stimulate the economy. | However, it noted that the MPC would face the difficult choice of raising rates to control inflation or lowering them to stimulate the economy. |
| Analysis: Kamal Ahmed, economics editor | |
| In the Bank of England's assessment of the health of the UK economy, one ringing sentence jumps out: "The most significant risks to the [economic] forecast concern the referendum," the Monetary Policy Committee says. | |
| It goes on to reveal that far from this simply being a judgement on what Bank officials describe as the "uncertainty spike" around the fact the referendum is taking place at all - this is a judgement that Brexit would have a material effect on the economy. | |
| In a Bank world of carefully chosen words, "material" means significant. And significantly downwards. | |
| Read more from Kamal here. | |
| Chancellor George Osborne said the UK now had a "clear and unequivocal warning" from the MPC as well as the Governor of the Bank of England about the risks of a Leave vote. | Chancellor George Osborne said the UK now had a "clear and unequivocal warning" from the MPC as well as the Governor of the Bank of England about the risks of a Leave vote. |
| "The Bank is saying that it would face a trade-off between stabilising inflation on one hand and stabilising output and employment on the other," he said. | "The Bank is saying that it would face a trade-off between stabilising inflation on one hand and stabilising output and employment on the other," he said. |
| "So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods. This is a lose-lose situation for Britain. Either way, we'd be poorer." | "So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods. This is a lose-lose situation for Britain. Either way, we'd be poorer." |
| Fading | Fading |
| The Bank's Inflation Report said that uncertainty over the EU referendum was already weighing on economic activity: "There is evidence that a material proportion of the 9% fall in sterling exchange rate since its peak in November could reflect referendum effects. | The Bank's Inflation Report said that uncertainty over the EU referendum was already weighing on economic activity: "There is evidence that a material proportion of the 9% fall in sterling exchange rate since its peak in November could reflect referendum effects. |
| "It is hard to judge how much of the slowdown reflects a loss of underlying momentum and so may persist and how much is likely to unwind if uncertainty recedes following the referendum. | "It is hard to judge how much of the slowdown reflects a loss of underlying momentum and so may persist and how much is likely to unwind if uncertainty recedes following the referendum. |
| "Referendum effects will also make it harder to interpret economic indicators over the next few months." | "Referendum effects will also make it harder to interpret economic indicators over the next few months." |
| The Report said that inflation probably fell back to 0.3% in April from 0.5% in March, reflecting the falls in oil and food prices over the last year and the strength of sterling in the same period. | The Report said that inflation probably fell back to 0.3% in April from 0.5% in March, reflecting the falls in oil and food prices over the last year and the strength of sterling in the same period. |
| It expected inflation to return to the target 2% level by mid-2018 as these factors faded out. | It expected inflation to return to the target 2% level by mid-2018 as these factors faded out. |