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Bank warns EU vote may hit growth

BBC News BBC News 14/04/2016
Bank of England © AFP Bank of England

The Bank of England has warned the EU referendum could hurt growth in the first half of this year as it held interest rates at 0.5%.

All nine members of the Bank's Monetary Policy Committee (MPC) voted to keep rates at their record low, where they have now been for over seven years.

The Bank warned uncertainty over the EU referendum could cause "some softening" in growth in the first half of 2016.

It said sterling had also been affected by the uncertainty ahead of the vote.

"There are some signs that uncertainty relating to the EU referendum has begun to weigh on certain areas of activity, as some decisions, including on capital expenditure and commercial property transactions, are being postponed pending the outcome of the vote," policymakers said in their minutes of the meeting.

"This might lead to some softening in growth during the first half of 2016."

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The Bank warned that a vote to leave the EU might result in "an extended period of uncertainty about the economic outlook, including about the prospects for export growth".

"This uncertainty would be likely to push down on demand in the short run... (and) have significant implications for asset prices, in particular the exchange rate," it said.

'Biggest domestic risk'

The Bank also said sterling had fallen further over the past month mostly due to uncertainty ahead of the EU referendum, but suggested it may recover if the UK votes to stay in the EU.

Last month, Bank of England governor Mark Carney said the possibility of Britain leaving the EU was the "biggest domestic risk to financial stability".

The Bank's warning comes just days after the International Monetary Fund warned the UK's exit from the European Union could cause "severe regional and global damage".

It said a so-called "Brexit" would disrupt established trading relationships and cause "major challenges" for both the UK and the rest of Europe.

Chris Williamson, chief economist at financial information firm Markit, said the Bank's minutes had brought "fresh signs of how uncertainty regarding the June vote on the UK's membership of the EU was already unsettling business confidence".

"Brexit concerns appear to be exacerbating existing worries about the extent to which UK and global demand remains worryingly fragile.

"It's highly likely, therefore, that the second quarter could see growth slow further, possibly considerably if anxiety about the referendum intensifies, turning the focus to the possible need for more stimulus," he added.

Matthew Elliott, the chief executive of Vote Leave, the main campaign group for a so-called Brexit, said the "safe option" was to vote leave.

"The risk of voting remain is one that even the Bank of England acknowledges. Britain's economic and physical security is put at risk by our membership of a declining political union where we are constantly outvoted and our trade is held back," he said.

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