Halister News

(Bloomberg) -- The outlook for BOE policy were the U.K. to vote to leave the EU at the June 23 referendum is less clear than the likely direction of sterling, Goldman Sachs analyst Andrew Benito writes in client note.

• The path for Bank Rate depends on whether the U.K.’s central bank sees a need to support the weaker economy in the face of weaker domestic confidence, which implies lower interest rates and even weaker sterling
  • Or if it wants to bolster foreign investor confidence as overseas investors require compensation for the reduced confidence in the U.K. outlook and returns on U.K. assets; this would mean rates may eventually rise
• Expect the BOE to lean heavily on credit easing measures that lower the spread over Bank Rate in retail lending conditions rather than solely on Bank Rate itself
• Goldman Sachs baseline forecast is that the U.K. votes to remain
• Goldman FX analysts estimate a vote to leave would see GBP weaken by 15%-20% in trade-weighted terms; size of sterling fall and BOE response would depend on the source of the shock, whether it’s loss of foreign confidence as overseas investors become more reluctant to finance the current account deficit or loss of domestic confidence and weaker domestic demand
• NOTE: Carney told MPs the next move in the key BOE interest rate would probably be up if Britons voted to remain in the EU, while a Leave outcome wouldn’t automatically bring about easing