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Brexit poses global financial risk, Bank of England warns Brexit poses global financial risk, Bank of England warns
(35 minutes later)
The Bank of England has warned that uncertainty about the EU referendum continues to be the "largest immediate risk" facing global financial markets. The Bank of England has warned that uncertainty about the EU referendum is the "largest immediate risk" facing global financial markets.
The Bank said there were "risks of adverse spill-overs to the global economy" from the 23 June vote.The Bank said there were "risks of adverse spill-overs to the global economy" from the 23 June vote.
It was "increasingly likely" that sterling would fall further in the event of a vote to leave the EU, perhaps sharply, the Bank added.It was "increasingly likely" that sterling would fall further in the event of a vote to leave the EU, perhaps sharply, the Bank added.
Interest rates were held at the historic low of 0.5% for another month. Sterling fell 0.5% to $1.4132, but was steady against the euro.
It said there was growing evidence that UK businesses and consumers were putting off "major economic decisions" ahead of the referendum. The Bank warned in the minutes of May's Monetary Policy Committee meeting that a "vote to leave the EU could materially alter the outlook for [economic] output and inflation".
MPC members said there was growing evidence that UK businesses and consumers were putting off "major economic decisions" ahead of the referendum, with real estate and car purchases delayed, along with business investments.
The Bank said it had contingency measures in place to deal with any fall-out from the referendum result, including the offer of more support to banks and partnerships with other central banks to maintain financial stability.
The warning came as the MPC held interest rates at the historic low of 0.5% for another month.
Carney and Vote Leave clash over EU battleCarney and Vote Leave clash over EU battle
EU referendum latestEU referendum latest
The Monetary Policy Committee minutes said that commercial and residential real estate purchases, car purchases and business investments had been postponed. Vicky Redwood, chief UK economist at Capital Economics, said a vote to leave the EU would probably mean rates staying on hold for some time, while a remain vote may put a rate rise "back onto the agenda before too long".
"An increasing range of financial asset prices has become more sensitive to market perceptions of the likely outcome of the forthcoming EU referendum," the Bank said, pointing out that its "measure of uncertainty" had risen. Howard Archer, chief European and UK economist at IHS Global Insight, said: "On the increasingly questionable assumption that the UK votes to stay in the EU next Thursday, we expect the Bank of England's eventual next move will be to raise interest rates from 0.5% to 0.75% - but not until May 2017."
The Bank repeated its warning in the May MPC minutes, saying that a "vote to leave the EU could materially alter the outlook for [economic] output and inflation". Earlier, Bank of England governor Mark Carney hit back at critics in the Vote Leave campaign who had warned him about commenting on the Referendum.
It said it had contingency measures in place to deal with any fall-out from the referendum result, including more intense supervision of banks, the offer of more support to financial institutions should they need it and partnerships with other central banks to maintain financial stability.
Analysis: Kamal Ahmed, economics editorAnalysis: Kamal Ahmed, economics editor
Anyone thinking that the Bank of England might tone down its warnings on the economic risks of the UK leaving the EU will have been disappointed by today's minutes from the MPC.Anyone thinking that the Bank of England might tone down its warnings on the economic risks of the UK leaving the EU will have been disappointed by today's minutes from the MPC.
In paragraph after paragraph, the Bank says "uncertainty" over the referendum is weighing on the economy.In paragraph after paragraph, the Bank says "uncertainty" over the referendum is weighing on the economy.
It also extends its concerns to global markets - a clear strengthening of its position since the minutes from last month, echoing concerns about "consequences" raised by Janet Yellen, the US Federal Reserve chair.It also extends its concerns to global markets - a clear strengthening of its position since the minutes from last month, echoing concerns about "consequences" raised by Janet Yellen, the US Federal Reserve chair.
The Bank also says that sterling volatility has increased.The Bank also says that sterling volatility has increased.
There is some better news, however. The Bank does say global growth has slightly improved and that in the UK there has been strong retail sales growth and a "sizeable jump" in industrial production and construction output.There is some better news, however. The Bank does say global growth has slightly improved and that in the UK there has been strong retail sales growth and a "sizeable jump" in industrial production and construction output.
But the overall tone is clear - the biggest risk to the UK economy is still the outcome of the referendum on 23 June.But the overall tone is clear - the biggest risk to the UK economy is still the outcome of the referendum on 23 June.