Jane Foley, Senior FX Strategist at Rabobank, suggests that for months Bank of England staff have steadfastly been making preparations to ensure the safe running of the UK financial system in the event of a vote in favour of leaving the EU on June 23.
“As the first line of defense a wall of liquidity is available to commercial banks through three additional indexed long-term repo operations on June 14, 21 and 28 in the event that a Brexit sparks investors to withdraw funds from the system. While reassurances regarding liquidity are relatively straightforward, the longer term policy reactions of the BoE to Brexit related uncertainty are more difficult to compute at this stage.
Last month the Bank cited that “the most significant risks to the MPC’s forecasts concern the referendum”. At the June MPC meeting policy makers may release more information as to the preparations that have been made to cope with the early ramifications of a vote to leave to EU. Policymakers may also add colour to the risks to the economy which they perceive could derive from a Brexit.
Assuming a ‘Remain’ vote on June 23 we see May 2017 as the earliest date for the first BoE rate hike of the cycle. On balance we expect that uncertainties connected with the growth outlook suggest that a ‘Leave’ vote could result in lower rates for longer despite the likelihood of a weak pound promoting cost push inflation.”