The Bank of England’s Brexit rescue plan for the UK economy is a bad move for the European Union, claims Nigel Green DeVere Group CEO one of the world’s largest independent financial advice firms.
Nigel Green argues that the stimulus package aimed at avoiding recession by boosting growth in the UK will have a detrimental impact on the EU – especially the Eurozone.
Green points out that cutting the official interest rate from 0.5% to a record low of 0.25% and triggering more bond buying by the bank saw the value of the pound dive.
“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 when member states have shocks,” he said.
Gasping in despair
“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.
“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. They also indicated that they were likely to vote for additional cuts towards zero within months.
The Bank of England has started buying back government gilts despite some reluctance from pension funds and other financial institutions waiting for bond prices to rise.
— Nigel Green (@nigeljgreen) August 9, 2016
Problems for the EU
“The pound immediately plummeted on the news – and low sterling gives the EU problems,” said Green. “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.”
“The UK is the second largest economy in the EU and the zero GDP growth for the UK that Mark Carney forecasts for Q4 2016 and Q1 2017 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.”