Brexit vote may spark recession, Mark Carney warns

Author (Corporate)
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Series Details 12.05.16
Publication Date 12/05/2016
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Mark Carney, the Governor of the Bank of England warned on the 12 May 2016 that risks of the United Kingdom leaving the European Union 'could possibly include a technical recession'.

'The most significant risks to the MPC’s forecast concern the referendum. A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise. At the same time, supply growth is likely to be lower over the forecast period, reflecting slower capital accumulation and the need to reallocate resources. Sterling is also likely to depreciate further, perhaps sharply. This combination of influences on demand, supply and the exchange rate could lead to a materially lower path for growth and a notably higher path for inflation than in the central projections set out in the May Inflation Report. In such circumstances, the MPC would face a trade-off between stabilising inflation on the one hand and output and employment on the other'.

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Related Links
ESO: Background information: Treasury Select Committee Hearing – The economic and financial costs and benefits of UK's EU membership: Mark Carney and Jon Cunliffe
ESO: In Focus: Brexit - The United Kingdom and the European Union
ESO: Background information: EU membership and the Bank of England
Bank of England: Publications: News, 12.05.16: Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion
The Guardian, 12.05.16: Brexit could lead to recession, says Bank of England
Britain Stronger in Europe: News, 12.05.16: Bank of England inflation report warns: Uncertainty already has an effect on Sterling
The Guardian, 15.05.16: Brexit minister accuses Bank of England of 'dangerous intervention'
BBC News, 15.05.16: Mark Carney defends Brexit recession warning
Politico, 15.05.16: Bank of England governor denies politics is behind EU referendum intervention
Blog: Open Europe, 13.05.16: The Bank of England and responding to Brexit – between a rock and a hard place?

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