Bank of England warns Brexit could see lower growth and higher inflation

12th May 2016


The Bank of England has warned that a UK vote to leave the EU in the June referendum could lead to higher unemployment and lower growth as it votes unanimously to keep interest rates at 0.5%.

The latest Bank of England Inflation report forecasts inflation will reach 0.9% in September, as long as the UK stays in the EU.

The report suggests that after slowing in the second quarter of the year, growth will pick up in the second half.

The Bank says that a vote to leave ‘could lead to a materially lower path for growth and a notably higher path for inflation”.

The MPC said: “A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy.  Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise.

“At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources.  Sterling is also likely to depreciate further, perhaps sharply.  This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May Inflation Report.”

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