Bank of England monetary policy maker Michael Saunders said in a speech last Friday that the Bank of England may have to cut interest rates even if the UK avoids a no-deal Brexit, as the high uncertainty associated with the event is likely to continue. "I think it is reasonable that the next step in the bank's interest rate is to fall rather than rise," Saunders said in a speech to the Barnsley Chamber, Rotherham Chamber of Commerce and the Institute of Chartered Accountants.
The UK is due to leave the EU on October 31, and Prime Minister Boris Johnson has vowed that there will be no delays even if no agreement is reached with the EU on their future relations. Johnson has faced fierce opposition in parliament from those trying to avoid a no-deal Brexit.
The monetary policy official believes that uncertainty about Brexit is likely to continue to rise even without any deal in reality.
"In this case, it may be appropriate to maintain the position of monetary easing for a long time and perhaps to further ease the policy at some point, especially if global growth remains disappointing," he said. Saunders pointed out that the impact of uncertainties about Brexit is similar to an economy that is developing a "slow hole" and causing growth to only crawl.
Interest rate makers expect the UK to face further brinkmanship even if it avoids a no-deal Brexit, thus keeping uncertainty high. In this scenario, the economic outlook is likely to be much weaker than the main forecast in the August inflation report, although it is far less negative than Brexit, the official said.
After keeping its monetary policy unchanged this month as expected, the Bank of England said developments regarding Brexit are making British economic data more volatile. The central bank said political events could lead to another period of entrenching uncertainty.
The bank expects economic growth of 0.2% in the third quarter and expects inflation to remain slightly below the 2% target in the near term.
