‘Brexit’ Risk Paralyzing Bank of England Decision-Making
SputnikNews.com
06.05.2016
An unlucky combination of Brexit risk, and long-standing market-determined risks to the UK’s financial stability are rendering the Bank of England (BOE) unable to react to neither at this point.
Kristian Rouz — The UK’s financial markets, oversaturated with investment capital, might be overheating ahead of the inopportunely looming Brexit vote, as the Bank of England (BOE) is poised to delay any action on monetary policy out of reluctance to give investors a message that could be easily misinterpreted. While the situation demands a hike in base interest rates from the currently ultra-low 0.5%, the BOE is likely to protract on any decision in this regard given the Brexit risk is an already negative factor to the overall growth perspective. With Britain possibly leaving the EU after 23 June, market volatility is rife, and a hike in rates could trigger excessive declines in financial markets, yet, any delay in the current circumstances are bearing risks of assets bubbles.
The BOE Governor Mark Carney will deliver his outlook on policy and a broader economic situation later this week, and with Brexit and possible asset bubble risks in sight, the regulator has found itself between rock and a hard place, unable to act in a situation demanding quicker decisions.
“I can’t imagine the BOE would want to give the markets any kind of hostage to fortune,” Peter Dixon of the London branch of Commerzbank AG said. “This will be a bit of an interim forecast which says growth is modest, inflation is muted but marginally picking up moderately, and we’ll all be dancing around the elephant in the room.”
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