BOE: Expect Market and Economic Volatility After Brexit

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Friday, June 24, 2016 9.47AM / Agency News and report by Jason Douglas and Tom Fairless of WSJ

Britain has been warned to expect "some market and economic volatility" in the wake of the Brexit vote. Bank of England Governor Mark Carney said there will be a period of uncertainty and adjustment but insisted the bank was "well prepared".

After news of Brexit emerged, more than £100 billion was wiped off the FTSE 100 as the index fell more than 7%, while the pound also crashed 8% against the US dollar.


U.K. Prime Minister David Cameron said he would step down from his position after Britain voted to leave the European Union, while stocks and sterling tumbled. Credit: WSJ

Speaking after David Cameron announced his resignation as prime minister, Mr. Carney said:

  • It will take time for the UK to establish new relationships with Europe and the rest of the world
  • Britain can expect economic volatility
  • He has remained in close contact with chancellor
  • The Bank of England will not hesitate to implement necessary measures

 

Mr. Carney - who had suggested Brexit could spark recession - was now attempting to calm nerves and project stability.


Mark Carney addressing the British public. Credit: ITV News

BOE to ‘Take All Necessary Steps’ Following ‘Brexit’ Vote - WSJ

The Bank of England took steps to calm febrile financial markets in the wake of the U.K.’s decision to exit the European Union, pledging to flood the financial system with cash and deploy all the tools in its arsenal to maintain stable prices and safeguard the stability of the financial system.

 

Mark Carney, the BOE’s governor, Friday said the U.K. central bank stands ready to pump at least £250 billion ($371.85 billion) into the financial system to keep it functioning smoothly.

 

“The people of the United Kingdom have voted to leave the European Union. Inevitably, there will be a period of uncertainty and adjustment following this result,” the BOE governor said in a televised statement.

 

“The bank will not hesitate to take additional measures as required as those markets adjust and the U.K. economy moves forward,” Mr. Carney said.

 

The BOE said it is in close contact with other central banks as markets swooned following the U.K.’s shock decision to quit the EU. The Swiss National Banksaid Friday that it has intervened in currency markets in the wake of the U.K. decision to exit the European Union.

 

“Following the United Kingdom’s vote to leave the European Union, the Swiss franc came under upward pressure,” the SNB said in a statement. “The Swiss National Bank has intervened in the foreign exchange market to stabilize the situation and will remain active in that market.”

 

Singapore’s central bank said Friday it is prepared to step in to stabilize the Singapore dollar and prop up the banking system.

 

The U.K. voted 52% to 48% to exit the bloc in a vote that has rocked markets and risks sparking political and economic turmoil in the U.K. and beyond. Prime Minister David Cameron resigned Friday, saying new leadership was needed to negotiate the U.K.’s departure from a club it has spent more than 40 years helping to shape.

 

The pound fell by more than 11% Thursday night and into Friday morning, while stock markets in Asia fell, a brutal drubbing for investors who had stacked up bets it would go the other way.

 

Investors will be watching the European Central Bank closely. It said earlier this month that it stands ready to work with the BOE provide cash to financial markets if needed.

 

The ECB signaled it may publish a declaration Friday underlining its readiness to tap currency-swap lines with the BOE that were established during the financial crisis. Those facilities give central banks the ability to provide cash to banks and financial firms in a variety of currencies.

 

The referendum result comes at an awkward time for the ECB, whose top officials had been signaling recently that, after years of unprecedented stimulus measures, they had probably done enough to drive inflation back up to their near-2% target.

 

That calculation may now have to be revised, economists said, as the British vote risks undermining confidence in the region’s fragile recovery. The ECB has already cut interest rates below zero and is purchasing €80 billion of public and private bonds a month.

 

ECB President Mario Draghi warned earlier this month that a British decision to leave the European Union represented a threat to the bloc’s modest economic recovery, though he said the ECB was “ready for all contingencies.”

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