Bank of England governor Mark Carney on Thursday suggested monetary easing may be required this summer, saying that the economic outlook had “deteriorated” after Britain voted to leave the EU.
“The economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” he said in a speech in central London.
Carney also said special liquidity loans for banks would be extended until September.
“Reflecting the possibility that heightened uncertainty may last a while longer, today the Bank of England is announcing that it will continue to offer Long-Term Repo operations on a weekly basis until end-September 2016,” he said.
“This will provide additional flexibility in the Bank’s provision of liquidity insurance over the coming months,” he added.
“One uncomfortable truth is that there are limits to what the Bank of England can do,” he said.
“Monetary policy cannot immediately or fully offset the economic implications of a large, negative shock,” he said.
In reaction to the remarks, the British pound fell to a two-year low against the euro, reaching 83.8 pence per euro at 1515 GMT, while the London stock market rose.
In his speech, he also warned that as a result of the current uncertainty “UK households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise”.
“Through financial market and confidence channels, there are also risks of adverse spillovers to the global economy,” he added.