AN ANALYSIS OF THE EFFECT OF MONETARY POLICY

CHANGES POST BREXIT

Multinational Financial Management

CURRENT SITUATION
 Monetary policy

• Monetary policy in the UK is the

responsibility of the Bank of England’s
Monetary Policy Committee (MPC).
• The MPC has nine members, four of whom
are appointed by the Chancellor.
• The MPC has one goal, to hit its inflation
target of 2%.
• UK is not alone in having relied on
monetary instruments to stabilise its
economy after the financial crisis of 2008.
Policy Rate
Recent UK interest rates (2006-2016)
The effect of a reduction
in interest rates
Total UK government spending & Tax Revenue
POST BREXIT
 Economic Situation

• It is expected that the economic situation post BREXIT to worsen.

• The impact of BREXIT is unclear although there will be damaging
fallout from Brexit
• severe and worsening economic conditions due to BREXIT.
• Bank of England in August 2016 Inflation Report stated:
• Changes in monetary policy
• The outlook for growth in the short to medium term has weakened
• Downward revision of the economy’s supply capacity
• Rise in unemployment
 Decline in Growths
• The Bank predicts little growth during the second half of 2016
• Further declines in business investment
• weaker levels of personal consumption
• Business investment was already falling prior to the EU referendum
• The balance of payments where in Q1 of 2016 the deficit on the
current account was 6.9% of GDP
• Furthermore the fall in the exchange rate will have an impact on
disposable real income due to:
• rising import prices
• effects on domestic costs of production
• Effect domestic consumer expenditure
Further Cuts
• In July 2017 the Bank announced
further cuts in banking reserve
requirements:
• to lower the countercyclical
capital buffer rate from 0.5%
to 0% of banks
• The effects of all this monetary
easing are totally unpredictable
Monthly visits of foreign people in the UK (RDC, 2017)
Effect on
Immigration
• There will losses from
restricting immigration
following a Brexit.
• EU immigration has not had
significantly negative effects
on
• average employment,
• wages, inequality or
public services
References
• Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly
Journal of Economics, 131(4), 1593-1636.
• Calvo, G. (2008). Exploding commodity prices, lax monetary policy, and sovereign wealth funds.
• Crafts, N. (2016). The Growth Effects of EU Membership for the UK: a Review of the
Evidence. Competitive Advantage in the Global Economy (CAGE), Global Perspectives Series:
Paper, 7.
• Dhingra, S., & Sampson, T. (2016). Life after BREXIT: What are the UK’s options outside the
European Union?.
• Kierzenkowski, R., Pain, N., Rusticelli, E., & Zwart, S. (2016). The Economic Consequences of
Brexit.
• Lea, R. (2016). Brexit really does mean Brexit: Article 50 to be triggered by end-March
2017. Arbuthnot Banking Group, 10.
• Meade, E., & Stasavage, D. (2008). The dangers of increased transparency in monetary
policymaking. Economic Journal, 118.
• Nugent, N. (2017). The government and politics of the European Union. Springer.