The Bank of England on Thursday sounded the alarm that a vote for the U.K. to leave the European Union would hurt the economy and send the pound sharply lower. In its toughest warning yet, the central bank said the "most significant risk" to its economic forecasts concern the so-called Brexit referendum on June 23. "A vote to leave the EU could materially alter the outlook for output and inflation, and therefore the appropriate setting of monetary policy. Households could defer consumption and firms delay investment, lowering labour demand and causing unemployment to rise," the policy makers said in a statement accompanying its rate decision. The bank kept its key rate at a record low of 0.5% as expected. The BOE also said sterling is likely to depreciate further, "perhaps sharply" in the case of a vote to exit the union. The pound has dropped 9% since its November peak, half of which reflects the risks associated with the referendum, the bank said. "There are increasing signs that uncertainty associated with the EU referendum has begun to weigh on activity," it said.
Copyright © 2016 MarketWatch, Inc.