Bank of England could re-enter Brexit debate with interest rates decision
The Bank of England could be set to re-enter the Brexit debate this week when it releases its final decision on interest rates before Britain's referendum on EU membership.
The Bank, which has already warned about Brexit, is not bound by purdah rules restricting civil servants from publishing material relating to the vote. As such, it may continue to sound the alarm over a British exit from the European Union as part of Thursday's announcement on the cost of borrowing.
Analyst Chris Hare of Investec said the Bank will have licence to wade back into the EU debate if the referendum is seen to hamper attempts to hit its inflation target.
He said: "The Bank of England entered a 'purdah' period from May 28, whose rules forbid civil servants from publishing material relating to the 23 June vote.
"But the Bank does not comprise civil servants and it only follows purdah arrangements on a self-imposed basis, with certain exceptions. The most notable exception, flagged by governor Mark Carney in front of the Treasury Select Committee last month, is the June 16 MPC meeting.
"Governor Carney has indicated that the Monetary Policy Committee will not hold back from flagging issues, including the referendum, if they are 'relevant to the achievement of the inflation target'."
The Bank, which is expected to vote unanimously to keep rates on hold at 0.5% where they have been since March 2009, warned last month that a Brexit vote could trigger a ''technical recession'' in the UK.
Mr Carney said a recession - two quarters in a row of falling output - was one of the possible outcomes from a Brexit vote, but that the Bank had not compiled formal forecasts.
In its latest quarterly inflation report, the Bank said a vote to leave the EU could ''materially'' hit UK growth and cause the pound to fall ''sharply'', seeing inflation spike higher, while the economy would suffer as households and businesses reined in spending.
It also cut its UK growth forecasts to 2% in 2016, 2.3% in 2017 and 2.3% in 2018.
UK economic growth slowed to 0.4% in the first three months of 2016, down from 0.6% in the fourth quarter of last year, following an industrial sector slump.
And a recent flurry of gloomy reports suggests activity has pulled back sharply since then due to Brexit fears.
The MPC's decision on the cost of borrowing will come hot on the heels of Tuesday's inflation announcement, with the cost of living expected to edge up to 0.4% in May.
Official data is predicted to show that the Consumer Price Index bounced back from a 0.3% slump in April, as rising oil prices push up the cost of petrol.
But CPI is unlikely to rebound to the 15-month high of 0.5% seen in March.
Howard Archer, chief European and UK Economist at IHS Economics, said: "Inflation is expected to have risen modestly in May primarily due to higher petrol prices as a result of oil prices reaching 2016 highs during the month.
"However, the upward impact of this will be limited by the fact that oil prices also firmed in May 2015. Sterling's overall weakening over the early months of 2016 may also have had some upward impact on prices in May."
Sharply lower oil prices have kept inflation historically low, with the Bank predicting it to stay far beneath the Government's target for some time.
