Saunders outlines outlook

Sterling falls as Bank rate-setter hints at cut over uncertainty

Bank of England

Bank of England: monitoring Brexit (pic: Terry Murden)

Sterling fell after a Bank of England policymaker said it may need to cut interest rates should Brexit uncertainty continue to hang over the UK economy.

A cut may still be necessary even if the UK avoids a no-deal exit, said Michael Saunders.

Interest rates have been unchanged at 0.75% since August 2018, when they were raised from 0.5%, having hit a record low of 0.25% after the 2016 EU referendum.

Mr Saunders said the Bank could launch further asset purchases – restart its quantitative easing programme – if rates hit rock bottom.

Speaking to businesses in Barnsley, said: “If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in Bank Rate would be down rather than up.”

The pound fell 0.4% to $1.2277 before making a slight recovery while the FTSE 100, which tends to rise on falls in sterling due to its high number constituents with overseas earnings, rose in mid-morning trade by 75 points or 0.95% to 7,426.5 (10.30am). This was its highest level since late July, just before it plunged last month.

Mr Saunders, who is a member of the Bank of England’s nine-member Monetary Policy Committee, described levels of uncertainty surrounding the UK’s departure from the EU as a kind of “slow puncture” for the economy.

“In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing,” he said.

Mr Saunders said he was sticking with the Bank’s guidance that a limited and gradual increase in interest rates would be needed over the medium term if Brexit uncertainty reduced significantly and global growth speeds up.

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