Bank of England will make extra liquidity available to banks around referendum

Britain's central bank announced on Monday evening it would make extra liquidity available to lenders immediately before and after the country's referendum on continued membership of the European Union, provoking an immediate backlash from some observers, who accused the Bank of England of being politically-motivated in the timing of its announcement.

The announcement was made ahead of testimony due the next day from Bank of England governor Mark Carney and deputy governor Jon Cunliffe before the Treasury Select Committee on the financial costs and benefits of the UK's membership of the European Union, starting at 09:15GMT.

"Whatever the rights and wrongs of last night’s public announcement the bank is running the risk of becoming a political football and while it is surely sensible to implement a policy of contingency planning, surely it would have been just as easy to inform MP’s today that measures were being put in place, and notify the banks the facility was available if needed without making a melodrama out of it?

"Anyone would think we’re voting to leave the euro, we already have our own currency, which means a bank run is highly unlikely," said Michael Hewson, chief market analyst at CMC Markets UK.

The Old Lady on Threadneedle Street said it would hold three more indexed long-term repo (ILTR) operations around the date of the 23 June vote.

Banks, building societies and brokers would be offered extra funds on a six-month basis to tidy them over the period of uncertainty that might accompany the holding of the referendum and its results.

To an extent, the announcement might help to alleviate any possible stress on lenders resulting from traders and other lenders speculating on even the remote risk of any mishaps.

However, in 2014, in the run-up to the Scottish referendum, the BoE did not make a similar announcement, although it was later revealed that contingency planning had taken place behind the scenes.

Some market commentary early on Monday pointed out the difference between the central bank's actions on both occassions.