Bank’s deputy governor predicts another rate cut
A deputy governor of the Bank of England has said she thinks it likely the central bank will cut interest rates still further to help the UK economy cope with the impact of the Brexit vote.
The Bank’s nine-person Monetary Policy Committee voted unanimously to reduce interest rates to a new record low of 0.25 per cent in August, and the minutes of the MPC’s meetings since have suggested “a majority” of members are leaning to another cut later this year if the economy develops in line with its forecasts.
But better than expected economic data and surveys since the June vote have led financial markets to
temper their expectations of another rate cut.
Yet Minouche Shafik, the deputy governor for markets and banking, told a Bloomberg summit in London yesterday that: “It seems likely to me that further monetary stimulus will be required at some point in order to help ensure that a slowdown in economic activity doesn’t turn into something more pernicious.”
This puts her at odds with fellow MPC member Kristin Forbes, who said last week that she was not inclined to vote for another rate cut because the economy had been “less stormy than expected”. The most likely date for another rate cut would be at the MPC’s meeting on 3 November, since that would coincide with the Bank’s quarterly growth and inflation forecasts.
Ms Shafik is stepping down from the Bank in 2017 to become director of the London School of Economics. She will have served just three years in the job, having been appointed in 2014.
The Bank’s Governor Mark Carney told the Treasury Select Committee earlier this month that the economy had performed “a bit” better than the Bank expected in August but he added “we’re keeping it in perspective”. In August the Bank forecast GDP growth in the third quarter of 0.1 per cent, which it said would be supported by its initial rate cut.
In her speech yesterday Ms Shafik defended the Bank's response to the vote, in which it not only cut interest rates but restarted its quantitative easing programme. “I’d much rather be on the front foot and react pre-emptively,” she said.
“I also think what we did helped mitigate the negative shock from the referendum. While the current data has been more favourable, the forward-looking indicators still look quite worrying.”