The Bank of England (BOE) left its benchmark Bank Rate unchanged at 0.50 percent, as widely expected, and while it again warned about the risks to growth and inflation from a decision to leave the European Union (EU) it added today that "through financial markets and confidence channels, there are also risks of adverse spillovers to the global economy."
The BOE, which has drawn considerable criticism for its comments on how next weeks' vote on the EU could affect the U.K. economy, again confirmed its view that the exchange rate of pound sterling could also "depreciate further, perhaps sharply."
In the face of this criticism, BOE Governor Mark Carney has said it was the central bank's responsibility to point out the economic risks of a vote to leave the EU and he would be failing to public if he did not flag danger in advance.
Since its first comments last month on the likely outcome of a vote to to leave the EU on June 23, the BOE said there was already growing evidence that uncertainty has already lead to "delays to major economic decisions that are costly to reverse," including real estate transactions, car purchases and business investments.
In May, the BOE had warned that households could defer consumption and firms delay investment in light of the vote, leading to higher unemployment, a view it reported today.
Financial assets have also become sensitive to the prospects of the outcome of the EU vote, the BOE said, adding that short-term interest rates and bank funding costs have been affected by opinion polls about the referendum while the recent deterioration in global risk sentiment was attributed to increasing uncertainty ahead of the referendum.
"The outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets," the BOE said.
After firming from mid-2013 to mid-2014, pound sterling has been depreciating gradually since then, with the uncertainty over the U.K.'s membership of the EU adding to its decline.
Today the pound was trading at 0.709 to the U.S. dollar, down from 0.679 at the start of the year, or 4.2 percent.
As in the last four months, the BOE's Monetary Policy Committee (MPC) was unanimous in its decision to keep the Bank Rate steady - it has been maintained since March 2009 - along with the stock of assets purchased by at 375 billion pounds.
In its latest inflation report from May, the BOE trimmed its forecast for 2016 Gross Domestic Product growth to 2.0 percent from February's forecast of 2.2 percent and the 2017 forecast to 2.3 percent from 2.4 percent. For 2018 the forecast was cut to 2.3 percent from 2.5 percent.
The U.K. economy grew by an annual rate of 2.0 percent in the first quarter of this year, down from 2.1 percent in the previous quarter.
The Bank of England issued the following statement: