Central bank’s monetary policy committee says pound likely to tumble and markets would react erratically to Brexit, as interest rates remain at 0.5%

The Bank of England has issued a fresh warning that a vote to leave the EU in next week’s referendum risks knocking economic growth, pushing the pound sharply lower and sending shockwaves through the global economy.

Against the backdrop of jittery financial markets, the Bank also revealed its top policymakers had been briefed by staff on contingency planning for the referendum as it readies measures to prevent markets seizing up in the event of a leave vote next week.

Announcing its decision to keep interest rates at their record low of 0.5%, the Bank said the referendum on 23 June was the biggest immediate risk to UK financial markets, and perhaps those overseas, and that the current uncertainty was already denting spending. The pound has weakened in the run-up to the vote as opinion polls have pointed to a lead for the leave vote and the Bank warned in minutes to its latest rate-setting meeting that it would fall further in the event of Brexit.

“The outcome of the referendum continued to be the largest immediate risk facing UK financial markets, and possibly global financial markets,” said the minutes. In addition: “On the evidence of the recent behaviour of the foreign exchange market, it appears increasingly likely that, were the UK to vote to leave the EU, sterling’s exchange rate would fall further, perhaps sharply.”

The minutes also noted recent comments on potential Brexit risks to global financial markets made by the US central bank as it left interest rates there on hold this week. The record of the Bank’s final rate-setting meeting before the referendum showed all nine members of the monetary policy committee (MPC) voted unanimously to keep interest rates at 0.5%. That was as expected by financial markets and economists, given the impending vote.

The minutes said the MPC had been briefed on contingency planning for the referendum, including on the “more intensive supervision by the Prudential Regulation Authority of major financial institutions to ensure they had sufficient liquidity”.

The Bank said in the minutes that it was “well placed to address liquidity needs and support the functioning of financial markets”. In the minutes, policymakers noted a pick-up in uncertainty ahead of the vote, which could knock economic growth.

“The main focus of the committee’s policy discussion this month concerned the difficulty in identifying the underlying momentum in the domestic economy, amidst the influence on activity of uncertainty related to the EU referendum,” the minutes said.

“Measures of uncertainty had increased further over the past month, with the UK a clear outlier internationally. And there had been growing evidence that uncertainty about the outcome of the referendum was leading to delays to major economic decisions that were costly or difficult to reverse.”

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There had been a “sharp decline” in the value of commercial real estate transactions and in merger and acquisition (M&A) activity and reports of delayed business investment, the Bank said, echoing some private sector reports of spending decisions being deferred. The Bank also noted some possible influence on consumer spending.

“Regarding households, both car purchases and residential housing activity had declined, although it was difficult to isolate the extent to which these effects related to the referendum or a more general underlying slowing,” the minutes said. But the Bank added retail sales had been stronger than expected in April and that confidence indicators, as a whole, “remained healthy”.

Interest rates have been on hold at a record low of 0.5% for more than seven years. Expectations of when rates might start to rise back to more normal levels have been shifted back amid signs the economy may have slowed recently. Some policymakers and economists have even discussed the prospect of interest rates being cut further. In the near-term much will depend on the referendum and market reaction to the outcome.

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Last month, Bank governor Mark Carney warned that Brexit could tip the UK into recession. He also said a vote to leave the EU could knock the pound sharply lower, stoke inflation and raise unemployment, leaving the Bank with a difficult balancing act as it decides whether to cut, hold or raise interest rates to counter opposing forces.

The minutes on Thursday repeated the Bank’s prediction that in the event of Brexit it would face a likely tradeoff between stabilising inflation on the one hand and output and employment on the other. Carney has been criticised by leave campaigners for what they see as inappropriately political comments from the independent central bank.

Earlier on Thursday, Nigel Lawson, Norman Lamont, Michael Howard and Iain Duncan Smith wrote a Telegraph article accusing the Treasury and the Bank of England of a “woeful failure” to offer a fair analysis of what might happen in the event of Brexit. But David Cameron defended the Bank, saying the leave campaign’s criticism of the independent Bank was “deeply concerning”.

“We should listen to experts when they warn us of the dangers to our economy of leaving the European Union,” the prime minister added. Separately, it emerged that Bernard Jenkin MP, a director of the Vote Leave campaign, had written to Carney warning him not to breach the pre-referendum “purdah” rules by talking about the referendum.

But Carney hit back, telling Jenkin that the Bank had simply been following its statutory duty to the UK people, according to the BBC, which saw the letters.