LONDON (AP) – United Kingdom (UK) interest rates could be cut even if the country avoids leaving the European Union (EU) on October 31 without a deal, one of the Bank of England’s nine top policymakers said on Friday.
In a speech, Michael Saunders said the British economy has “weakened markedly” as a result of “persistently high Brexit uncertainties and softer global growth.”
Even assuming Britain avoids leaving the EU without a deal, Saunders said “persistently high Brexit uncertainties seem likely to continue to depress UK growth below potential for some time, especially if global growth remains disappointing.”
“In such a scenario – not a no-deal Brexit, but persistently high uncertainty – it probably will be appropriate to maintain an expansionary monetary policy stance and perhaps to loosen further,” he said.
Monetary policy would also take into account other factors, particularly changes in the exchange rate and fiscal policy, he said. Saunders’ comments suggest the central bank may decide to cut its main interest rate from 0.75 per cent at its next policy meeting on November 7, just a week after the country’s scheduled Brexit date.
A cut would mean the Bank of England joins the Federal Reserve and the European Central Bank in loosening policy.
The response to the speech in the currency markets was swift as none of the rate-setters had pointed so clearly to a rate cut. The pound fell around half a cent against the dollar, to USD1.2275, though it has since largely bounced back.
It remains unclear whether Britain will leave the EU on October 31. Prime Minister Boris Johnson has said it will do so come what may, but lawmakers have passed a bill that requires the Prime Minister to ask for an extension from the EU if no deal has been struck with the EU by October 19.