The U.K. might be in for further monetary stimulus over the summer as a result of market deterioration following the country's decision to leave the European Union, hinted Mark Carney, governor of the Bank of England.
In a speech Thursday, Mr. Carney addressed the U.K.'s shock outcome of a referendum to decide its future membership of the EU. The U.K. voted 52% in favor of leaving the union.
“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 easing will likely be required over the summer,” he said.
The MPC will make an initial assessment July 14, followed by a full assessment and new forecast in its August inflation report. “In August, we will also discuss further the range of instruments at our disposal,” Mr. Carney said.
He said while the result of the vote is clear, the full implications for the economy are not. “The U.K. can handle change. It has one of the most flexible economies in the world and benefits from a deep reservoir of human capital, world-class infrastructure and the rule of law … The question is not whether the U.K. will adjust, but rather how quickly and how well.”
However, he acknowledged the decision to leave the EU “marks a major regime shift. In the coming years, the U.K. will redefine its openness to the movement of goods, services, people and capital. In tandem, a potentially broad range of regulations might change. Uncertainty over the pace, breadth and scale of these changes could weigh on our economic prospects for some time,” said Mr. Carney.
He also addressed episodes of geopolitical, economic and policy uncertainty over recent years, and said “all this uncertainty has contributed to a form of economic post-traumatic stress disorder amongst households and businesses, as well as in financial markets — that is, a heightened sensitivity to downside tail risks, a growing caution about the future and an aversion to assets or irreversible decisions that may be exposed to future 'disaster risk.'”
