The Bank of England’s Brexit response will hit the European Union economy hard, affirms the chief executive of one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green, CEO and founder of deVere Group, follow last week’s announcement by the Bank governor, Mark Carney, of a four-pronged stimulus package designed to boost the UK economy and prevent a recession following the vote to leave the EU.
Mr Green observes: “The EU gasped in shock at the Brexit decision in June. Now it will be gasping in despair as its already beleaguered economy is likely to take another major hit thanks to the Bank of England’s Brexit response.
“In an effort to cushion the UK from a potential Brexit-induced recession, the BoE policymakers have decided unanimously to cut rates to 0.25 per cent, from a previous historic low of 0.5 per cent. They also indicated that they were likely to vote for additional cuts towards zero within months.
“The pound immediately plummeted on the news – and low sterling gives the EU problems. As sterling falls against the euro, UK exports are more competitive both in EU markets and globally. This will seriously negatively impact the profits of both EU companies in their home markets and their exporters.”
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He continues: “In addition, the UK is the second largest economy in the EU and the zero GDP growth for the UK that Mark Carney forecasts for Q4 and Q1 of next year will inevitably impact on demand for all goods. But demand for imports will be even more adversely affected as they will be more expensive in sterling terms due to the fall in sterling in recent months.”
Mr Green concludes: “Allowing the exchange rate to fall when an economic shock occurs is a time-honoured method by which an economy can adjust – something the Euro can’t do, of course, when member states have shocks.
“But the Bank of England’s lowering of the pound to help ward off the UK’s economic woes will be a hammer blow to the already stressed economies across the EU.”
Last week, Mr Green also commented: “There are noble aims behind cutting the interest rate and the plans to pump an additional £60bn of electronic cash into the economy to buy government bonds.
“But slashing the rate to historic lows and extending the existing QE initiative to £435bn in total is going to unleash more catastrophic damage on UK pensions, pension funds and, potentially, the UK’s long-term sustainable economic growth.”