Can the Bank of England prevent recession?
The Bank of England has cut the benchmark interest rate to a record low of 0.25 percent in a bid to stave off recession after the Brexit vote. In addition it plans to increase purchases of government and corporate bonds. The flood of money has given the country a reprieve but Britain must soon make clear what policies it intends to pursue, commentators write.
Onus on British government now
The UK's central bank cannot cushion the huge impact of Brexit all on its own, the Financial Times warns:
“More to the point, while the Bank of England can offset a shock to confidence and smooth the UK’s adjustment to a 'new reality', as Mr Carney terms it, there is little it can do to alter that reality. Brexit represents a huge supply-side shock that will suppress investment for years. The UK’s long-term prosperity will depend on the evolution of its trading relations and on its ability to improve on dismal productivity. So while the BoE’s burst of monetary stimulus may have bought politicians time, the onus is now on government to deliver a well-targeted fiscal boost, while it decides on the form that Brexit should take and begins negotiations.”
Flood of money can't replace policies
What is lacking is not liquidity but political decisions, the business paper Il Sole 24 Ore criticises:
“This crisis is self-inflicted, triggered by a political decision that was daringly given to the people simply to clarify the balance of power among the Conservatives. … Now all eyes are on the Bank of England in the hope that the good old bazooka that will turn into a wonder weapon is safely tucked away in its safe and ready for use. The fact that Big Bertha, to stick with the war metaphors, is being brought into position is a political decision. But political decisions are precisely what is lacking. … London has paved the way - also with the appointment of a Brexit minister - for a lengthy transition from the world of yesterday into that of tomorrow. But this is not the time for slowness. And now as before there are still no indications of which direction London has decided to take.”
Negative impact on the rest of Europe
The consequences of the Brexit vote are making themselves felt all over Europe, El Periódico de Catalunya writes commenting on the interest rate cut:
“Since the Brexit vote all the indicators point to the British economy slowing down. Activity in the service sector, which accounts for 80 percent of Britain's GDP, has contracted more than in the last seven years, while industry and construction are stagnating and the British pound has weakened. Faced with this slide into recession the Bank of England's rapid implementation of countermeasures is a plausible move. .. But this won't be the end of the problem. We live in times of globalisation so the Brexit won't remain a problem that affects only the British economy. The IMF has already calculated the negative impact on the Eurozone at 0.5 percentage points. In Spain the tourist industry is registering a drop in consumption by British tourists who saw their purchasing power reduced from one month to the next.”