Favour rises for Brexit, may boost possibilities for BoE easing

A favour rising for Britain to leave the European Union on June 23 would hurt the economy, and could push the Bank of England to cut interest rates for the first time since the financial crisis. According to latest British Chambers of Commerce's (BCC) survey, conducted last month concluded that there is growing support amongst its members for a ‘Brexit’. They mentioned that its members to vote for Brexit increased to 37 pct, from 30 pct in the late January survey. Similarly, members in favour to stay in European Union fell to 54 pct, from 60 pct in the previous survey.

In addition, the Bank of England Governor Mark Carney has already warned the nation's commercial banks and other financial institutions of a possible rate cut on prospects of Britain’s exit from the European Union. He had earlier reiterated the possible risks to growth and development that pose to the union in such an instance. Moreover, the banks have been informed to check their balance sheets, if at all they can withstand a rate cut, anytime soon. Britain’s possible exit, to be decided on Jun 23rd, represents the biggest risk that would nail down on the union’s future, Carney said in his speech.

The major concern is that British gilt yield could rise, making difficult for the government to finance its deficits, while railing equities market will weaken the investors sentiments. On the other hand, the market will be keen to see whether the BoE Inflation Report due on Thursday (1100 GMT) and Governor Carney’s accompanying press conference implicitly endorses the market’s current very relaxed view on the path of future interest rates.