Brexit latest: Bank of England policymaker 'not convinced' of need for another rate cut

Ben Chu
Thursday 22 September 2016 13:20
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A member of the Bank of England’s nine-person Monetary Policy Committee has indicated she is not inclined to vote to cut interest rates still further later this year, citing the better than expected performance of the economy in the wake of the Brexit vote.

Kristin Forbes, an external member of the MPC, argues in a speech today that the economy had been “less stormy than many expected” following the shock referendum result.

“Looking forward, I am not yet convinced that additional monetary easing will be necessary to support the economy” she said in speech to Imperial College, London.

“For now…the economy is experiencing some chop, but no tsunami. The adverse winds could quickly pick up – and merit a stronger policy response. But recently they have shifted to a more favourable direction.”

When it cut rates to 0.25 per cent in August the MPC signalled in its minutes that “a majority of members” had expected to reduce rates at a future meeting later in the year if the data proved consistent with its forecasts.

That verbal formulation was re-iterated in the minutes in the wake of the MPC’s September meeting, leading many to expect a cut of rates to just 0.1 per cent in November.

Ms Forbes voted, along with the rest of the MPC, to cut rates in August but she did vote, alone, against the Bank’s decision to purchase £10bn of corporate bonds to stimulate the economy.

And along with Ian McCafferty and Martin Weale she voted against a further £60bn of government bond purchases as part of its restarted Quantitative Easing programme.

Several City of London economists have been revising away their forecasts of a recession for the UK in recent weeks as hard data and forward looking surveys of activity have either held up or bounced back after steep initial falls.

For its part, the Bank forecast GDP growth of 0.1 per cent in the third quarter of 2016 in August, with activity supported by its monetary stimulus.

Giving evidence to the Treasury Select Committee earlier this month the Bank’s Governor, Mark Carney, said: “We expected some bounce-back, there’s been a bit more, but we’re keeping it in perspective. We’ll see when we get all the data in, but broad-brush, is growth running about half as much as it was prior to the referendum? That’s probably about right, given what we know right now”.

Michael Saunders, a former economist at Citi, replaced Weale as an external member on the MPC this month.

Saunders gave an interview to The Financial Times this week in which he suggested that he saw scope for UK growth to pick up before feeding through into damaging inflation.

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