Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Bank of England's Carney sees need for summer stimulus after Brexit shock

Economy Jun 30, 2016 02:41PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. The governor of the Bank of England Mark Carney gives a press conference at the Bank of England in the City of London

By William Schomberg and David Milliken

LONDON (Reuters) - Bank of England Governor Mark Carney said the central bank would probably need to pump more stimulus into Britain's economy over the summer after the shock of last week's decision by voters to leave the European Union.

Carney also said he would not consider resigning from the Bank if his critics from the referendum's Leave campaign, who were angered by his warnings of a Brexit hit to Britain's economy, end up filling a power vacuum in the government.

"In my view, and I am not prejudging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer," he said in a speech on Thursday.

Investors were already expecting the BoE to cut interest rates in July or August from an already record low of 0.5 percent - unchanged since 2009 - and ramp up its 375 billion pound bond buying plan too.

Nonetheless, Carney's clear signal of further action to offset the Brexit shock pushed sterling down by more than 1 percent against the dollar to about a cent above the 31-year low it touched on Monday. The yield on 10-year British government bonds sank to a record low of 0.882 percent.

Carney said the BoE's Monetary Policy Committee would give an initial assessment of the impact of the referendum's impact on July 14, at the end of its next scheduled meeting. That would be followed by a full assessment on Aug. 4, when the Bank will deliver a reworked set of forecasts for the economy.

"In August, we will also discuss further the range of instruments at our disposal," Carney said.

Investors are facing a deeply uncertain political outlook after Prime Minister David Cameron said he would resign after losing a vote which will see the country separate from the EU, which buys almost half of Britain's exports.

"The lesson from previous shocks is that there's a value in acting early and acting decisively," said RBC economist Sam Hill on Carney's intervention. He said he expects to see a rate cut in July, followed by another in August coupled with a renewed asset purchase plan.


The lack of political leadership has heaped responsibility on the BoE to steer the economy.

Carney angered supporters of the Leave campaign before the referendum with his warnings about the consequences of a Brexit.

In response to a question from a reporter on Thursday, who asked if his position would become untenable if Leave campaigners take control of Britain's government, Carney said: "The exact opposite.

"It would be irresponsible of me, or any of my other colleagues, to walk away from those obligations, because those are our obligations under statute," he said.

In his speech, delivered in the Bank's ornate Court Room, Carney said there were limits to how low the Bank could cut rates. "As we have seen elsewhere, if interest rates are too low or negative, the hit to bank profitability could perversely reduce credit availability or even increase its overall price."

Carney said a first wave of contingency measures drawn up by the Bank and Britain's finance ministry were "working well".

He also said the Bank had "a host of other measures and policies" to steer the economy and Britain's vast banking sector through the shock triggered by the referendum result.

Other central banks hold a clue to the options open to the British central Bank.

The BoE, which purchased small quantities of corporate bonds when it first started its quantitative easing program in 2009, could follow in the footsteps of the European Central Bank by buying them on a larger scale.

The BoE could also take further credit-easing steps to reduce the cost of bank loans to help spur investment.

The Bank will hold weekly sterling liquidity auctions between now and the end of September - instead of monthly - as a precaution in case banks run into problems getting hold of cash.

But Carney warned that central bankers on their own would not be able to eliminate the referendum shock and Britain's economic growth prospects would be driven by "much bigger decisions; by bigger plans that are being formulated by others".

He said it was important that Britain's relationship with the EU was clarified as quickly as possible, including a decision on how open it will remain to migration, one of the most sensitive issues for British voters.

Carney and his fellow BoE policymakers will not have much hard data on how Britain's economy has responded to the referendum jolt when they meet next month. Surveys of Britain's manufacturing, construction and service sectors, covering the month of July, will be published only in early August.

Bank of England's Carney sees need for summer stimulus after Brexit shock

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
DANIEL MERTECHS Jun 30, 2016 1:04PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Carney destroyed the Canadian dollar....Before doing the same with the Pound (as a Brexit "reward") the Brits better get rid of him...Instead tie their Pound to gold...
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email