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MPC member questions need for interest rate cut

Published 18/07/2016

The Bank of England decided to keep interest rates on hold
The Bank of England decided to keep interest rates on hold

Bank of England policymaker Martin Weale has questioned whether interest rates will need to be cut next month in a bid to bolster the UK economy following the Brexit vote.

Mr Weale, a member of the Bank's Monetary Policy Committee (MPC), said the Bank was "not a nurse to markets" and there were no signs that consumers or business were "panic-struck" following Britain's decision to leave the European Union .

The value of the pound stepped up following his comments, trading up 0.26% against the dollar at 1.322 US dollars.

The MPC defied predictions by keeping interest rates on hold earlier this month , but signalled action next month to boost the economy .

Speaking at the Resolution Foundation think tank, Mr Weale said: " The Old Lady of Threadneedle Street is not a nurse to markets.

"People who trade in markets know that the Monetary Policy Committee sets policy month by month in the way that its members think appropriate.

"It does sometimes, as we did in our July meeting, give an indication of where policy may go in the future. But that is no more than the best judgment at the time and not in any sense a commitment - the public understand that."

He added: "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, as I observed, there have been no material signs of financial panic."

The minutes from Thursday's meeting suggested a rate cut from 0.5% may come next month, revealing that ''most members of the Committee expected monetary policy to be loosened in August''.

They will wait until the Bank's quarterly forecasts on August 4 before taking further action and deciding on ''various possible packages of measures''.

One MPC member, Gertjan Vlieghe, voted for an immediate cut to 0.25% amid signs that the EU referendum decision was already hitting parts of the economy, with growth set to come under further pressure.

However, Mr Weale added: "For there to be a case for easing policy, I will need to expect weakness in output to be large enough more than to compensate for any overshoot in inflation on the assumption that policy is unchanged in the near term."

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