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Brexit process likely to be 'lengthy and bumpy' says newest member of MPC

Published 04/10/2016

Policymakers have indicated that another rate cut is likely by the end of the year
Policymakers have indicated that another rate cut is likely by the end of the year

The newest member of the Bank of England's monetary policy committee (MPC) has used his first public speech to say that the Brexit process is likely to be "lengthy and bumpy", but that the UK economy could emerge relatively unscathed.

Speaking at the Institute of Directors on Tuesday, external MPC member Michael Saunders said that compared with the Bank's August inflation report, he sees more slack in the economy but greater prospect for growth.

"The process of EU exit may be lengthy and bumpy," Mr Saunders said.

"But, unless Brexit-related uncertainties rise sharply and/or global conditions disappoint markedly, I suspect that the UK economy will be not too bad in the year ahead, with growth in 2017 more likely to be clearly above 1% rather than (as the consensus expects) below 1%."

Mr Saunders said he has not yet decided whether he will vote for further stimulus at the MPC's next meeting in November, saying "it will depend on the data".

Policymakers have indicated that another rate cut is likely by the end of the year, to a little above zero, with economists expecting more measures in November when the Bank will have its next set of economic forecasts.

The MPC will not deliver a rate decision in October, as part of a new schedule that will see the committee meeting only eight times per year.

Mr Saunders was not part of the MPC when it delivered its bumper post-Brexit stimulus package, which saw the Bank cut its key interest rate to a record low of 0.25% and extend its quantitative easing (QE) programme.

However, Mr Saunders said he voted against further policy action at the MPC's September meeting, preferring to see more post-Brexit evidence on economic performance.

He stressed that even if Britain were to face economic hardship as a result of the Brexit process, the Bank still has scope to stimulate the economy, adding that asset purchases "still have traction".

Mr Saunders, a former economist at Citigroup, joined the MPC on a three-year term in August and is the newest member on the interest rate-setting committee.

He replaced Dr Martin Weale, whose second term of office came to an end on August 8.

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