Bank of England Warns of Potential Global Financial Risk Posed by Brexit

This article was last updated on April 16, 2022

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In a repeated warning by The Bank of England, it has highlighted that growing uncertainty about the EU referendum is unprecedentedly becoming the single “largest immediate risk” facing global financial markets. According to the Bank, there were “risks of adverse spill-overs to the global economy” from the 23 June vote and it has become “increasingly likely” that sterling would fall further in the event of a vote to leave the EU.

Even though the bank held its interest rates at the historic low of 0.5% for another month, it stressed that there was evidence that UK businesses and consumers were putting off “major economic decisions” ahead of the referendum. The Monetary Policy Committee minutes have revealed that commercial and residential real estate purchases, car purchases and business investments had been postponed. The bank mentioned that “an increasing range of financial asset prices has become more sensitive to market perceptions of the likely outcome of the forthcoming EU referendum,” pointing out that its “measure of uncertainty” had risen.

Moreover, the Bank also gave a similar warning in the May MPC minutes, saying that a “vote to leave the EU could materially alter the outlook for [economic] output and inflation”. However, the bank also said that it had contingency measures in place to deal with any fall-out from the referendum result, including more intense supervision of banks, the offer of more support to financial institutions should they need it and partnerships with other central banks to maintain financial stability.