Stefan Koopman, Market Economist at Rabobank, suggests that the Bank of England surprised no one either by leaving the Bank rate at 0.50% and its asset purchase target at GBP 375bn.
“The decision was unanimous. Of course, it had something to add to the flux of Brexit-headlines as well. According to the Bank “a vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy”. If it indeed leads to a Brexit, it may well mean that there will be a “materially lower path for growth and a notably higher path for inflation” than was projected in last month’s inflation report. It’s clear that the Bank alludes to the cost-push inflation that results from a weaker GBP, but this surely won’t provoke them to raise rates.
Despite the fact that a number of pollsters now see the Brexit-campaign leading, and thereby sending the markets into a tailspin, there’s an obvious risk that the pollsters may actually be overreacting to their failure to predict the Conservative majority at last year’s elections.”
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