Brexit fallout: BoE to use extra £250 billion to help markets

A man speaks on his mobile phone as commuters pass by outside the Bank of England in London, on June 24, 2016.
A man speaks on his mobile phone as commuters pass by outside the Bank of England in London, on June 24, 2016.PHOTO: AFP

LONDON (REUTERS, BLOOMBERG) - Bank of England Governor Mark Carney said on Friday the central bank was ready to provide £250 billion ($462.6 billion) of additional funds to support financial markets after Britain voted to leave the European Union.

He also said the central bank will consider whether to take additional policy responses in the coming weeks after Britons voted to end their 43-year membership of the world's largest single market.

The pound plunged to a three-decade low, British and global stocks tumbled and European bond spreads widened as the Brexit vote unfolded on Friday.

Investor bets on a July interest-rate cut rose and Standard & Poor's said the UK will lose its top credit rating.

"Some market and economic volatility can be expected as this process unfolds," Mr Carney said in a televised statement after the referendum result. His comments followed Prime Minister David Cameron's announcement that he will step down this year, which will inject political uncertainty into an already volatile period.

 

The BOE has been preparing for more than a year to deal with this outcome and Mr Carney, who is likely to make a televised statement, will now have to rely on that crisis playbook to stem panic in financial markets. With the result announced on a normal trading day, the immediate threats of Brexit could include investors dumping UK assets and a drying up of bank funding.

Almost 52 per cent of UK voters opted to leave the EU. As the direction of voting became clear, turbulence hit foreign- exchange markets, with the pound falling more than 10 per cent against the dollar - the most on record - and more than 8 per cent against the euro. The UK's FTSE-100 and Europe's Stoxx 600 both plunged 8 per cent as they opened.

Institutions including the US Federal Reserve and the European Central Bank are primed to pump liquidity into the system if needed. Mr Carney said UK policy makers will assess conditions in the coming weeks and "consider any additional policy responses."

The BOE has already added extra auctions this month to make funds available to lenders. It could cut its key interest rate to as low as zero from 0.5 per cent, perhaps immediately, analysts at ING Bank NV said in a note to clients. Traders are pricing in a more than 50 per cent chance that the BOE will cut borrowing costs by its July meeting, according to data compiled by Bloomberg using swaps on the sterling overnight index average.

The BOE "has undertaken extensive contingency planning and is working closely with HM Treasury, other domestic authorities and overseas central banks," it said in a statement early Friday.

"The Bank of England will take all necessary steps to meet its responsibilities for monetary and financial stability."