The Bank, which has already warned about Brexit, is not bound by “purdah” rules restricting civil servants from publishing material relating to the vote. As such, it may continue to sound the alarm over a British exit from the European Union as part of Thursday’s announcement on the cost of borrowing.
Analyst Chris Hare of Investec said the Bank will have licence to wade back into the EU debate if the referendum is seen to hamper attempts to hit its inflation target.
He said: “The Bank of England entered a ‘purdah’ period from 28 May, whose rules forbid civil servants from publishing material relating to the 23 June vote.
“But the Bank does not comprise civil servants and it only follows purdah arrangements on a self-imposed basis, with certain exceptions. The most notable exception, flagged by governor Mark Carney in front of the Treasury select committee last month, is the 16 June MPC meeting.
“Governor Carney has indicated that the monetary policy committee will not hold back from flagging issues, including the referendum, if they are ‘relevant to the achievement of the inflation target’.”
The Bank, which is expected to vote unanimously to keep rates on hold at 0.5 per cent – where they have been since March 2009 – warned last month that a Brexit vote could trigger a “technical recession” in the UK.
Carney said a recession – two consecutive quarters of falling output – was one of the possible outcomes from a Brexit vote, but that the Bank had not compiled formal forecasts.
In its latest quarterly inflation report, the Bank said a vote to leave the EU could “materially” hit UK growth and cause the pound to fall “sharply”, seeing inflation spike higher, while the economy would suffer as households and businesses reined in spending.
It also cut its UK growth forecasts to 2 per cent this year, 2.3 per cent in 2017 and 2.3 per cent in 2018.
UK economic growth slowed to 0.4 per cent in the first three months of 2016, down from 0.6 per cent in the fourth quarter of last year, following an industrial sector slump. And a recent flurry of gloomy reports suggests activity has pulled back sharply since then due to Brexit fears.
The MPC’s decision on the cost of borrowing will come hot on the heels of Tuesday’s inflation announcement, with the cost of living expected to edge up to 0.4 per cent in May.
Official data is predicted to show that the consumer prices index (CPI) bounced back from a slump to 0.3 per cent in April, as rising oil prices push up the cost of petrol. But CPI is unlikely to rebound to the 15-month high of 0.5 per cent seen in March.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Inflation is expected to have risen modestly in May primarily due to higher petrol prices as a result of oil prices reaching 2016 highs during the month.
“However, the upward impact of this will be limited by the fact that oil prices also firmed in May 2015. Sterling’s overall weakening over the early months of 2016 may also have had some upward impact on prices in May.”
Sharply lower oil prices have kept inflation historically low, with the Bank predicting it to stay far beneath the UK government’s 2 per cent target for some time.