Boost for the pound following interest cut doubts

MONETARY Policy Committee member Martin Weale has signalled he is not yet persuaded there is a need to cut benchmark UK interest rates from their record low next month.

Mr Weale’s hawkish comments boosted the pound yesterday. At 5pm, the pound was trading around $1.3278, up by nearly 0.9 cents on its pre-weekend close. Sterling was also firmer against the euro, which was trading at 83.36p at 5pm, down from a pre-weekend close of 83.77p.

But the pound is still way below where it was ahead of last month’s Brexit vote.

Last week, the Bank of England signalled the MPC might be minded to cut base rates from their record low of 0.5 per cent next month.

The MPC voted eight-toone last week to hold UK base rates at 0.5 per cent. Gertjan Vlieghe voted unsuccessfully for an immediate quarter-point reduction in rates.

Mulling his final MPC meeting next month, and citing uncertainty about the economic impact of the Brexit vote, outgoing committee member Mr Weale said: “This uncertainty points to the argument that we should wait for firmer evidence before making any policy change and least in the absence of any strong arguments for an immediate change. The argument in the other direction is that, while I am very uncertain about the magnitude of the effect, it does seem to me quite likely that demand will weaken more than supply in the near term.”

Mr Weale added: “I would like to mention two arguments I have heard for a rate reduction to which I give little weight. This is that markets would be disappointed were there to be no easing in August. The Old Lady of Threadneedle Street is not a nurse to markets.

“A second argument to which I give little weight is the argument that early action is needed to reassure people. In contrast to the experience of 2008, I do not have any sense that either consumers or businesses are panic-struck and... there have been no material signs of financial panic.”