Bank of England says will
take all necessary steps to ensure stability
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[June 24, 2016]
By William Schomberg and Ana Nicolaci da Costa
LONDON (Reuters) - The Bank of England
said on Friday it would take all necessary steps to shield Britain's
economy from the shock decision by voters to pull the country out of
the European Union which caused immediate turmoil on financial
"The Bank of England is monitoring developments closely," it said in
a statement after the referendum victory of the "Leave" campaign
triggered a 10 percent fall in the value of sterling and a slump in
government bond yields to a new record low.
"It has undertaken extensive contingency planning and is working
closely with Her Majesty's Treasury, other domestic authorities and
overseas central banks."
The BoE has previously said a decision to leave the EU -- which buys
nearly half Britain's exports -- could deliver a material blow to
the economy. But it could also push up inflation because of hit to
sterling, complicating any decision to cut interest rates.
Interest rate futures <FSSZ6> priced in a high chance of a BoE rate
cut by the end of the year, a view which analysts at Citi also
expected to be shared by the bond market.
The economy was already slowing as the referendum approached and BoE
Governor Mark Carney said in May that it could suffer a technical
recession -- a contraction in two consecutive quarters -- in the
event of a vote to leave the EU.
Carney said earlier this year that a Brexit vote would also test the
"kindness of strangers" who fund the country's big current account
He was due to speak to broadcasters on Friday.
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The BoE held two extra liquidity auctions ahead of the referendum and is due to
hold another one on Tuesday in order to help banks avoid any problems around the
time of the vote.
It also has the option of using previously agreed foreign currency swap lines
with other leading central banks around the world as a way to prevent a seizing
up of financial markets.
The Bank has said it could cut interest rates in order to cushion Britain's
economy from the shock of an "Out" decision but it might also come under
pressure to raise them if sterling falls sharply, threatening to push up
Most economists polled by Reuters before the referendum had predicted a rate cut
in the event of an "Out" vote.
The Bank is expected to wait and see where the value of the pound settles before
taking any policy decisions. Its next scheduled monthly policy announcement is
due on July 14.
Separately, its banking supervision arm has been checking more intensively with
banks that they have enough liquidity to see them through any market turmoil. It
was in contact with banks ahead of the opening of financial markets on Friday, a
source familiar with the situation said.
(Reporting by Ana Nicolaci da Costa, editing by William Schomberg)
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