HALISTER1: BOE Hike on Brexit Unlikely as Lower GBP Seen Favored: Jefferies

BOE Hike on Brexit Unlikely as Lower GBP Seen Favored: Jefferies

(Bloomberg) -- While some commentators suggest BOE may lift rates to defend the pound were the U.K. to vote to leave EU, the events of 1992 suggest the opposite may be true, Jefferies analysts led by David Owen write in client note.
  • Faced with a deteriorating economy, the immediate policy is more likely to be about cutting rates, or resuming QE
  • U.K. policy makers would more than likely welcome a lower pound given the openness of the economy
    • If currency weakness was to turn into a rout, that would be a completely different story
  • Gilt-market liquidity may be an issue were the U.K. to vote to leave, given two European banks have already pulled out of primary dealership
  • NOTE: If U.K. voted to leave, BOE might have to raise interest rates even in the face of a downturn in investment, former deputy governor John Gieve said Tuesday
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Source: BFW (Bloomberg First Word)

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David Owen (Jefferies International Ltd)

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