Global economic uncertainty increases since Brexit vote, says ECB

Economic uncertainty has increased globally since the UK voted to leave the European Union, according to the European Central Bank (ECB) on Thursday.

In its monthly economic bulletin, the ECB said following the referendum financial market volatility was short lived, but warned that uncertainty about the global outlook increased. Economic data from the second quarter pointed to subdued global activity and trade.

The ECB said with “encouraging resilience” the euro-area financial markets weathered the spike in uncertainty and volatility and overall financial conditions remain highly supportive.

The bank said it expects the euro-area to recovery moderately from the economic fall out post-referendum.

“The economic recovery in the euro area is continuing, supported by domestic demand, while export growth remains modest. Looking ahead, the economic recovery is expected to proceed at a moderate pace”.

The economic bulletin suggested the British economy was shrinking at its fastest rates since the 2008 financial crisis, as the ECB expects economic growth to decline in the second half of the year. GDP growth slowed to 0.4% quarter-on-quarter in 2016.

“According to short-term indicators, the UK economy continued to expand in the second quarter of 2016 at a relatively robust pace, similar to that seen in the previous quarter. However, the uncertainty created by the outcome of the UK referendum is likely to weigh on economic activity in the near term, in particular investment and trade."

In order to stimulate the economy, the Bank of England on Thursday cut interest rates, for the first time in seven years, to 0.25% from 0.5% and bolstered its asset purchase programme by £60bn to £435bn.

On the 21 July the ECB decided to keep interest rates unchanged based on regular economic and monetary analyses. The governing council, which sets the rate, expects it “to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases”.

There is speculation the ECB will extend the €80bn a month quantitative easing programme beyond March 2017 and change terms to avoid constraints on sovereign debt purchases.

The ECB said as more information comes available over the next coming months it will reassess the situation.

"If warranted to achieve its objective, the governing council will act by using all the instruments available within its mandate. The governing council confirmed the need to preserve an appropriate degree of monetary accommodation in order to secure a return of inflation rates towards levels that are below, but close to, 2% without undue delay."