Mark Carney, Governor of the Bank of England, stated in a speech on the Brexit yesterday that while the “result of the referendum is clear. Its full implications for the economy are not”, he also affirmed it was something the UK economy can handle.
EPTSD: Economic Post-Traumatic Stress Disorder
Carney explained that “increased uncertainty and tighter financial conditions,” meant that UK households may defer consumption and firms delay investment, lowering labor demand and causing unemployment to rise. As the sterling has depreciated sharply and overall risk to the UK economy continues to rise, this could lead to a materially lower path for growth and a notably higher path for inflation. With all of this confronting the UK economy, Carney stated;
“the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.”
Kevin Caley, founder and Chairman of peer to peer lender ThinCats, commented on Caley’s speech and the impending drop in interest rates;
“At a time of unprecedented political uncertainty, Mark Carney seems to be a safe pair of hands. In his three years in office, he has been a largely calming presence, steering the Bank of England through turbulent times. Now, he undoubtedly faces his greatest ever challenge, in calming the storm caused by last week’s referendum result.”
It is a truism that “monetary policy cannot immediately or fully offset the economic implications of a large, negative shock.” Caley hopes that support of the Fintech sector and benefits to the consumer will continue;
“By hinting that he may drop interest rates next month to a new record low, he is heralding more bad news for savers, who have suffered falling rates since 2008. But he also spoke of ‘seizing new opportunities’, and given his championing of the fintech sector, we can only hope that he displays such forward-thinking in the coming months, as the UK finds its feet after the Brexit hangover.”