Investing.com - Bank of England (BoE) governor Mark Carney reiterated that the British central bank would not make a recommendation on the referendum scheduled for June 23 that would decide if the U.K. remains in the European Union (EU) or decides to leave the group, commonly referred to as “Brexit”, but that he would ensure actions to mitigate any short-term effects to financial stability.
Testifying in front of the U.K. Treasury Committee on the topic of economic and financial costs and benefits of membership in the EU, Carney insisted on Tuesday that his institution would not take a position on the Brexit issue or make any type of recommendation for the vote.
The BoE governor did note however that at EU deal could improve stability of the banking union which he insisted would definitely help financial stability in the U.K.
On a similar note, BoE deputy governor Jon Cunliffe said that the EU renegotiation deal was significant and that parties recognized the need to separate non-euro zone countries from those belonging to the monetary union.
“Non-euro zone countries will continue to regulate their own banks,” he confirmed.
BoE takes steps to backstop banks around referendum date
Carney repeated in Tuesday’s session that the central bank had not included the possibility of Brexit into its forecasts.
“We have not prepared an analysis for that and we have no intention of providing an analysis for that,” the stated.
However, Carney did admit that the BoE could work to mitigate secondary economic effects with respect to financial stability.
Indeed, the BoE announced on Monday that it had added three additional Indexed Long-Term Repo (ILTR) operations in the weeks around the EU referendum.
The intention of the ILTRs is to ensure the availability of liquidity to banks, building societies and broker dealers.
These three additional operations will take place on June 21, 24 and 28, in comparison to the June 23 referendum date.
IMF plans to analyze Brexit impact on U.K and EU
International Monetary Fund president Christine Lagarde previously announced on Tuesday that her institution was preparing a report on the negative impact both on the U.K. and the EU if Britain decided to withdraw its membership.
“I believe our economic findings will strongly support the view that it would hurt the U.K. and EU,” Lagarde said on BBC News.
Many analysts and experts already gave forecasts for the effect on the U.K. economy and the pound in the event that Britain decides to leave the EU.
Oxford Economics released a report on Tuesday that suggested that the U.K. economy would take a 1% hit, while the decision would also drive down British stock prices.
“A scenario run on the Oxford Global Model suggests that Brexit would leave the level of U.K. GDP 1.3 percentage points lower by Q2 2018 compared with our baseline forecast that the U.K. votes to stay in the EU,” these experts said.
“Market pricing suggests that sterling could initially fall by around 15% before recovering some of its losses, while the heightened uncertainty would also be expected to drive a sharp drop in equity prices in H2 2016,” they added.
As Carney continued to testify in front of the Treasury Committee, the pound was relatively unchanged with regard to prior to the testimony as it continued to show weakness against major rivals. At 10:33AM GMT or 5:33AM ET, GBP/USD slipped 0.13% to 1.4244, EUR/GBP gained 0.25% at 0.7740, while the GBP/JPY lost 0.72% to trade at 160.63.