Doubts about the need for a cut in interest rates have been voiced by a member of the Bank of England’s monetary policy committee before next month’s meeting.
Martin Weale, who will be stepping down from the MPC after six years, said he wanted to weigh up the impact of Brexit on the economy before making up his mind on how to vote.
Weale said the Bank would have to balance the likely reduction in demand against upward pressure on inflation when it make its decision.
Weale said: “For there to be a case for easing policy I will need to expect weakness in output to be large enough to compensate for any overshoot in inflation on the assumption that policy is unchanged in the near term.”
Sterling rose on the foreign exchanges after Weale’s remarks at a conference in London, since they were seen as less supportive of action to underpin growth than interventions last week by two other MPC members – Andy Haldane and Gertjan Vlieghe. Haldane called for a big package of measures to support the post-Brexit economy and stressed the need for a prompt and robust response to the uncertainty. Vlieghe was the only MPC member to back a rate cut at the July meeting.
Weale said the result of the referendum on 23 June had led to a “very high degree of uncertainty” about the implications of Brexit, and this meant there was a case for waiting to see what the implications might be. Weale added that he thought the short-term impact on demand would be greater than that on the economy’s supply capacity, which would dampen inflation.
In his valedictory speech as an MPC member, Weale rejected two of the arguments used to justify lower borrowing costs.
First, he dismissed the notion that markets would be disappointed were there to be no easing in August, noting that market participants should remember that the MPC sets policy each month, not in advance. “The Old Lady of Threadneedle Street is not a nurse to markets,” he said.
Weale also gave short shrift to the idea that early action was 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.”
