Bank of England braces for turmoil post Brexit

The Bank of England is expected to vote unanimously to keep rates on hold at 0.5 percent at its policy meet scheduled on Thursday, June 16. The central bank is expected to re-enter the Brexit debate if the referendum is seen to hamper attempts to hit its inflation target. As the countdown to the referendum day has begun, central bankers are putting the defenses in place to shore up market confidence and the financial system if that happens.

The Bank of England (BOE) warned last month that a Brexit vote could trigger a “technical recession” in the UK and also cut its UK growth forecasts to two percent this year, 2.3 percent in 2017 and 2.3 per cent in 2018. Governor Carney has said that an exit vote is the biggest domestic risk to financial stability, the BOE has said it will monitor market developments and take action if needed.

BoE has announced three additional market-wide indexed long-term repo operations. The extra auctions, in which the BOE offers banks funds in exchange for collateral, will be held on June 14, June 21 and June 28, and will be on top of its regular monthly operations. The central bank can also intervene in foreign-exchange markets and activate swap facilities with other central banks including the ECB and Fed to help the firms access overseas currency.

"I expect they are in constant contact," said former ECB president Jean-Claude Trichet, referring to major central banks. A Brexit scenario may be "very, very volatile", and Carney has “the most difficult job” over the coming week, he said.