
Bank of England Hints at Additional Easing Over the Summer
Governor of the Bank of England Mark Carney has hinted that there could be additional monetary easing throughout the summer to deal with the aftermath of last week's Brexit vote.
The pound did not take kindly to the news, falling 1.36% against the dollar to $1.3247, neither did the 10-year gilt whose yields have plunged to 0.88%.
However, the FTSE 100 surged and after a choppy session gained 2.27% to close at 6,504.33. This is the highest level since last August.
In a rare speech, his second since the U.K. voted to leave the European Union, Carney said, "In my view, and I am not pre-judging the views of the other independent Monetary Policy Committee members, the economic outlook has deteriorated and some monetary policy easy will likely be required over the summer."
He said there are a range of potential easing options and it is not just about the bank rate. The interest rate currently sits at 0.5%.
Carney added, "If we decide to provide stimulus, it'll be the best stimulus for the economy."
The Monetary Policy Committee will make an initial assessment on July 14, and a full assessment will appear in the August inflation report. In August, the committee will discuss the range of instruments at its disposal.
Carney said, "The result of the referendum is clear. Its full implications for the economy are not. The U.K. can handle change...The question is not whether the U.K. will adjust but rather how quickly and how well."
The uncertainty surrounding the separation of the U.K. from the EU could weigh on economic prospects for some time.
"The Bank has taken all the necessary steps to prepare for these events. And will not hesitate to take any additional measures," Carney reiterated, adding contingency plans are working well and over the coming weeks will assess other measures.
On Friday, the central bank announced that £250 billion ($331 billion) additional funds would be made available to banks through its normal facilities. Today, the Bank said that due to the possibility of that heightened uncertainty would last for awhile the bank will offer weekly indexed long-term repo auctions through the end of September. "This will provide additional flexibility in the Bank's provision of liquidity insurance over the coming months."
However, the governor also gave a stark warning that there is a limit to what the Bank can do.
"In particular, monetary policy cannot immediately or fully offset the economic implications of a large, negative shock. The future potential of this economy and its implications for jobs, real wages and wealth are not the gifts of monetary policymakers," Carney said.
He added, "These will be driven by much bigger decisions; by bigger plans that are being formulated by others. However, we will relentlessly pursue monetary and financial stability. And by doing so we will facilitate the adjustments needed to realise this economy's full potential."









