Britain faces months of economic uncertainty.

WHAT does Britain’s vote to leave the European Union mean for British monetary policy? This morning the Bank of England said that it had “extensive contingency planning and is working closely with HM Treasury.” Priority number one is to calm the markets, which were not expecting a vote for Brexit.

At first glance it might seem inevitable that rates will be increased from their current historical low of 0.5%. After all, following the sharp depreciation of the pound, imports will become more expensive, pushing up inflation—perhaps above the bank’s 2% target. Higher interest rates may also help sterling to recover from its sharp fall. However, the central bank has typically “looked through” this sort of inflation in the past, seeing it as a temporary phenomenon (think of how it ignored high inflation in 2011). Moreover, the economy will be in desperate need of some sort of stimulus.

With the base rate already so low, cutting it much further is difficult. In the past the bank has questioned how feasible it is to push rates into negative territory, due to concerns about financial stability. Negative rates pose a particular threat to building societies, institutions which are almost entirely funded by deposits and whose assets are mainly mortgage lending. Still, the bank’s monetary-policy committee will do what it can; a cut to zero looks likely. The financial markets are not pricing in an interest-rate rise for many years.

With little room to reduce rates, the Bank of England may once again deploy quantitative easing (QE—printing money to buy bonds), analysts at Barclays Bank reckon. They think that the asset-purchase programme could be worth £100 billion-150 billion, on top of the £375 billion-worth of QE that the bank has conducted in the past.

There may be a smattering of other programmes on top of this. One candidate could be an expansion of the “funding-for-lending” scheme (FLS), which was launched by the Treasury and the bank in 2012. The FLS offers cheap money to participating banks if they boost credit to the “real economy”—that is, firms devoted to making and doing tangible things, as opposed to fancy finance. Before the referendum the scheme seemed to be paying off.

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