Closed Bank of England inflation report – as it happened

A vote for Brexit is likely to cost jobs, raise prices and see the pound fall sharply, the Bank of England has warned in its quarterly inflation report on Thursday in its most outspoken comments to date on the consequences of the EU referendum. For once the Bank of England’s quarterly inflation report is not about the forecast or the outlook for interest rates – which have been kept on hold – it is about the tone Governor Mark Carney takes today as he presents the central bank’s latest update.

By Emily Cadman and Mark Odell

  • Carney warns Brexit “could possibly” lead to a “technical recession”

  • Carney says the Bank “did not develop a full projection” for a Leave vote

  • Governor refuses to be drawn on any potential upside of Brexit


Good afternoon and welcome to our coverage of the Bank of England quarterly inflation report. The presentation starts at 12:30 and can be viewed via the Bank of England website


And Mr Carney is up and running


While he runs through his introductory statement, here is the reports the Bank put up a bit earlier


The big questions for the press conference will all be about Brexit. After a strong warning – but no actually numbers – expect Mr Carney to be pressed hard on the detail


The referendum has pushed up uncertainty to levels not seen since the financial crisis, Mr Carney says.


Here is the first take from the FT’s two reporters at the Bank that is up on FastFT – top lines below:

A vote for Brexit is likely to cost jobs, raise prices and see the pound plummeting, the Bank of England warned in its quarterly inflation report on Thursday in its most outspoken comments to date on the consequences of the EU referendum.

Although the central bank did not provide a detailed forecast of the consequences of Brexit, its expectation of lower growth and higher inflation would leave it facing a difficult “trade off between stabilising inflation on the one hand and stabilising output and employment on the other”, write Chris Giles and Gemma Tetlow.

Depending on whether the rise in inflation or the rise in unemployment was bigger, interest rates might go up or down, the BoE signalled.

The bank’s Monetary Policy Committee expects the uncertainty of the referendum itself to hit economic growth in the second quarter of the year with the forecast being cut from 0.5 per cent to 0.3 per cent.

But the BoE made it clear that the effects of a Brexit vote would be much larger.


The remain campaign certainly believe that Mr Carney’s warning is a moment for them. This just in from Chancellor George Osborne:

“This is a very big moment in the debate about the economic costs of leaving the EU.

“Today we have a clear and unequivocal warning, not just from the Governor of the Bank of England but also in the collective judgement of the Monetary Policy Committee, that a vote to leave would mean both materially lower growth and notably higher inflation.

“The Bank is saying that it would face a trade-off between stabilising inflation on one hand and stabilising output and employment on the other.

“So either families would face lower incomes because inflation would be higher, or the economy would be weaker with a hit to jobs and livelihoods.


There is a risk we could be over or underestimating momentum, says Mr Carney and warns leaving the EU could see sterling fall “perhaps sharply”


He said Brexit could also lead to a “materially lower path for [economic] growth”


Reaction is starting to come in from the city.

This from Aberdeen Asset Management’s chief economist Lucy O’Carroll:

“The Bank may not have changed monetary policy at this month’s rate meeting, but its latest Inflation Report pulls no punches on Brexit risks.

“It states that a vote to leave could result in “a materially lower path for growth and a notably higher path for inflation”. In other words, the worst of both worlds on the trade-off between growth and inflation. The assessment of these Brexit risks is also probably more forensic than expected.


Mr Carney says that the UK population will make a decision to vote on a “broader” set off issues than economics.

Whatever the outcome, the BoE will “use all of its tools to support financial stability” he says.


This is what happened to sterling via our colleagues on FastFT:


And we are on to the first question, from the BBC, will Mr Carney rule out the risk of the economy being pushed into recession if the UK votes to leave?

Mr Carney says “The biggest risk to the forecasts concern the referendum” not just because of uncertainty, but the judgement that a vote to leave would have “material effects”.

“We would expect a material slowing in growth” but rising inflation.

No precise answer on the question of recession risks.


More reaction from City economists, this time from Ben Brettell at Hargreaves Lansdown:

The Bank of England voiced concerns last month that the EU referendum had begun to affect the real economy and has made that warning even more explicit today. They state that a vote to leave the EU could ‘materially alter the outlook for output’. But for now though, expect no action on monetary policy until the dust has settled on the referendum.

Recent economic data releases have certainly painted a worsening picture.

Figures released yesterday showed UK industry slipped back into recession for the third time in eight years, and the sector is acting as a drag on the economy as a whole. Respected think-tank NIESR said yesterday that the UK economy lost momentum in the three months to April, estimating GDP growth of 0.3% compared with 0.4% for the three months to March. NIESR explicitly cited uncertainty over the referendum as a cause of the slowdown.

As such it wasn’t a surprise that the Bank cut its growth forecast for 2016, to 2.0% (compared with the 2.2% expected in February’s Inflation Report).

Another unsurprising result was the unanimous decision to leave rates on hold. In fact what speculation there was centred on whether any of the nine-strong committee would vote to cut rates, rather than raise them. The Bank expects inflation to reach its 2% target in mid-2018, before going on to rise further. These predictions assume bank rate follows market expectations of the first rise some time in 2018, and therefore suggests that if the Bank wants to avoid inflation exceeding the target, it needs to start raising rates somewhat sooner.


The FT’s Chris Giles is now up. Again asking whether Mr Carney will use the “R” word.

While stressing this is not a forecast, the governor says the risks in the event of a vote to Leave

“Could possibly include a technical recession”


Mr Carney is now being pressed on what policy options the BoE is considering in the event of a vote to leave.

Mr Carney avoids the question, saying that the only decision at the moment is what to do right now.

“We did not develop a full projection”, for a Leave Vote he adds.


FastFT has also dug out some of the key charts from the quarterly inflation report – you can see them here

Or if you like – here are the charts on inflation


The Leave campaign are not going to be happy with Mr Carney today.

They have already accused him overstepping his remit and becoming involved in politics.

But the BoE governor believes that this is something he should speak out on:
“This is entirely within remit,” he says.

Talking about Brexit is part of the “responsibilities of transparency” Mr Carney says


Regarding the BoE’s warning of a fall on Sterling, Mr Carney is pushed about whether he will quantify the extent of the fall.

Earlier this week, economist thinktank NIESR suggested that it could be in the realm of 20%.

Carney says he is not going to get into questions of dimension.

Deputy governor Ben Broadbent adds that they have not made any “numerical” forecasts.


And here is the FastFT’s post along with the Bank’s chart estimating the impact on sterling:


Another question on exactly what the BoE might do in the event of a vote to leave:

Unlike the Chancellor has suggested, Mr Carney is at pains to emphasis that it would not be “an automatic response”.

“The direction will depend on the balance of these forces” – ie. whether rising inflation or slowing growth was the bigger risk.

“In either direction we are in conventional monetary space.”


The FT’s Global Markets Commentator, Jamie Chisholm, has this quick take on sterling’s performance:

Sterling strengthened as the Bank of England was seen by traders to be aiding the argument against “Brexit”. The pound, which had been lower on the day, gained 0.1 per cent to $1.4456 and added 0.4 per cent versus the euro to 78.73 pence.


Mr Carney’s decision to say the “R” word – even if very cautiously is going to dominate the reporting of this press conference. As an example, here is the BBC’s political editor’s take.

https://twitter.com/bbclaurak/status/730728584122368001

And from Sky’s

https://twitter.com/faisalislam/status/730721817221058561


David Cameron, the prime minister, is clearly delighted that the Bank of England has gone further than previously on warning on the consequences of Brexit

https://twitter.com/David_Cameron/status/730717232314126336


But Mr Carney’s isn’t going to as far as some as the Remain campaign want:

https://twitter.com/ChrisGiles_/status/730728812510580736


Carney now being challenged about why there isn’t much detail in the report about any potential upside to Brexit – such as deregulation.

“We’ve done a lot of work” Mr Carney says.

“In eight years you are going to get all of this” Mr Carney says – referring to when all of the transcripts of the monetary policy committee meeting will be released.

i.e I’m not going to tell you any more


In the event of a vote to stay, when would the uncertainty currently hitting the economy dissipate?

Deputy govenor Ben Broadbent takes this.

He says the shock “fades away” but the economy is still affected “into next year” even in the event of a vote to remain.

i.e just holding the referendum will have weighed down the economy for a significant period in the BoE’s view.


There is precedent for the governor to speak out on hypothetical monetary policy responses to a shock.

In 2012, at the height of the eurozone crisis when it looked possible the currency bloc could collapse, then governor Mervyn King gave a clear statement the BoE would loosen policy.

But I think Mr Carney can still expect to take significant flak from the Leave campaigners.


One thing Mr Carney has been very keen to stress throughout the press conference is that the judgement that a vote to Leave the European Union risks materially lower levels of growth was one made unanimously by the monetary policy committee – i.e this is not just his view.


The Institute of Directors has “urged” businesses to take note of the Bank’s analysis:

The EU referendum is a very significant decision for Britain, and the impact of the question is clearly dominating the thinking of businesses and consumers alike.

The Bank of England has highlighted its concerns over the impact the referendum is having on business, and the even greater impact that it could still have on the economy. No matter what they eventually decide, every business in Britain should be giving very serious consideration to the concerns the Bank articulates.

This comes after the IoD put out a survey of its members on the EU referendum earlier this week, which found:

1. Business leaders split 63-29 in favour of remain with 6 in 10 saying access to the single market is important to their company, but three-quarters think EU needs reform to prevent economic decline.

2. Over half of company directors say Brexit would be a ‘significant’ challenge for them, but a similar proportion think the UK could ultimately be an economic success outside the EU.

3. There is no clear consensus among IoD members on the best UK-EU relationship in the event of Brexit.


The difficult judgement for the BoE now, which Mr Carney acknowledges, is whether the economy is slowing regardless of the referendum.

Mr Carney essentially says we are just going to have to wait and see how the data looks when the vote is over.


And the CBI has also weighed in with Rain Newton-Smith, the organisation’s economics director commenting:

The evidence that a vote to leave the EU would make a serious dent in our economy, jobs and prosperity is overwhelming and still growing.

The continued lack of a realistic argument on how the UK economy would be better off outside the EU is revealing.

If a different conclusion could be credibly shown, leave campaigners would have done so by now with fewer than 50 days before the vote.


Mr Carney is now talking about the uncertainty that would result if there was a vote for Brexit and stresses it all depends on how long it might take the UK to renegotiate its international treaties:

What is relevant is the uncertainty around what the agreements are . . . experience is that people and business wait in anticipation of claritiy


And we are on the final question.

Mr Carney, emphasizes that for the MPC, which conducts monetary policy, the risk of Brexit is the “biggest risk”, but that for the FPC – which is in charge of financial stability – it is the biggest domestic risk.


Right, that’s it from the Governor and the press conference is over


The Vote Leave campaign have so far remained quiet on the Bank of England’s latest intervention. There is no mention of it it on the campaign’s official Twitter feed although there was this post promising to create 300,000 jobs after Brexit an hour or so ago:

https://twitter.com/vote_leave/status/730722253638381568


Other than that, we also have this very fetching shot of the former mayor of London Boris Johnson with a grinder:

https://twitter.com/vote_leave/status/730734306071617536


So that’s it from the governor. To wrap-up:

The upcoming vote on whether to leave or remain in the European Union was the only topic on the agenda for this month’s press conference.

The BoE went further than it has before in warning of the numerous downsides of a vote to leave, including a hit to jobs. wages and growth.

In the press conference, Mr Carney said these could include a “technical recession” – which is two consecutive quarters (i.e 6 months) of negative growth.

But while the BoE’s description of a world of rising prices and slowing growth is essentially that of the stagflation seen in the 1970s, Mr Carney was not prepared to use that term.

The Leave campaign are sure to be sharply critical of Mr Carney’s comments, as they have consistently accused the governor of overstepping his remit. Mr Carney though believes he has a duty to speak out.


It would seem the Vote Leave’s campaign’s tactic is to ignore the central bank, at least for now, and is instead concentrating on what it perceives is its strongest card – immigration:

https://twitter.com/vote_leave/status/730734597923819521


Back in the currency markets and Sterling continues to strengthen as traders view Mr Carney’s intervention as aiding the argument against Brexit. The pound, which had been lower on the day before the Bank of England published its quarterly inflation report at midday BST, is up 0.23% to $1.4479


And with that we are going to wrap up our live coverage of the latest Bank of England quarterly inflation report in what was the most direct intervention in the Brexit debate by the Governor so far. As my colleague Emily Cadman points out in her wrap up post at 1:38pm the press conference was dominated by questions about the EU referendum and its consequences.

For ongoing coverage of the story please go to rolling news story on ft.com