MPC’s Saunders predicts long-term damage to UK economy

÷ BANK of England policymaker Michael Saunders has said the decision to leave the EU will have a long-term effect on the UK economy, though there’s still an argument to increase interest rates now.

In an interview in the Evening Standard, the external Monetary Policy Committee member said Brexit probably means the economy will grow “several percentage points less than it otherwise would do”. He added that it could be a “fairly sizeable” five percentage points less over the next 15 years. “But that’s over a long period of time,” he said. “Setting monetary policy, we’re not trying to determine the outlook for growth over the next 15 years, we’re thinking about the next couple of years. I doubt if those long-run effects of Brexit come through immediately.”

Saunders, pictured, who has voted to raise the benchmark rate at the previous two meetings, said the BoE may have to be a “bit more activist” on tackling inflation pressures. “The amount of spare capacity is much less now than in the past few years. So it follows from that it would be normal for the response of policy, if growth surprises on the upside, to be a bit more activist than it has been in the past few years.”