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Bank of England warns about Brexit stagflation risks

A vote to leave the European Union would most likely result in a material slowing of growth and a notable rise in inflation, the Bank of England said on Thursday.


Speaking during the press conference following the release of its latest inflation report, BoE governor, Mark Carney said such a scenario would pose a “challenging trade off” between stabilising inflation on the one hand and output and employment on the other.

Keen to make clear as often as possible that the Monetary Policy Committee was entirely within its remit to comment on the referendum because it posed “the most significant of risks” to the Bank’s forecast, Carney said: “We have a responsibility to talk about the risks to the forecast, the biggest risks to the forecasts concern the referendum, not just the fog of uncertainty about the near term data but the judgement that, if there were a vote to leave that would have material consequences for both growth and inflation.”

Mike Amey, MD and head of sterling portfolios at PIMCO said the MPC was right to highlight the downside risks in the event of a Brexit, adding that on PIMCOs reckoning, growth would slow to around 0.5% annualised in the event of a Brexit.

But, he added: “While the MPC is unwilling to plot out a path for monetary policy in the event of a Brexit, our sense is that there would be a significant probability that Bank rate would be cut to zero.  We think that the slowdown in growth would be a bigger issue than any short term rise in the CPI on the back of weaker sterling.”