LONDON- Bank of England policymaker Silvana Tenreyro said she would be inclined to back an interest rate cut in the coming months if growth does not pick up, adding to suggestions that the central bank is edging towards pumping more stimulus into the economy.
Governor Mark Carney, who steps down in March, surprised markets on Thursday by saying from a “risk management” perspective there could be a case for cutting rates if the economic weakness seen in late 2019 persists into 2020.
Tenreyro sounded a similar note on Friday, saying the economy was more likely to undershoot than overshoot the BoE’s last forecast from November, the latest version of which will be published alongside the BoE’s next rate decision on Jan. 30.
Britain’s economy lost momentum after the 2016 Brexit referendum and slowed to a crawl in late 2019, although tentative signs of a pick-up in sentiment appeared after Prime Minister Boris Johnson won an unexpectedly big majority in a Dec. 12 election.
“If uncertainty over the future (EU) trading arrangement or subdued global growth continue to weigh on demand, then my inclination is towards voting for a cut in Bank Rate in the near term,” she said at an event hosted by the Resolution Foundation think tank.
Financial markets priced in a roughly 50 percent chance of a quarter-percentage-point rate cut by the middle of the year after Carney’s remarks, and following Tenreyro’s remarks the probability of a move rose to around 60 percent.
Two of the nine BoE Monetary Policy Committee members voted to cut rates to 0.5 percent from 0.75 percent in November and December.
However, Tenreyro did not seem poised to vote for a rate cut at the BoE’s next meeting. Asked how soon she might back a loosening in policy, she said she first wanted to see how businesses and households reacted to Brexit developments.
“A key input in the decision is how uncertainty unwinds going forward, and how that impacts on demand,” she said. “I am talking about the coming months, on the possibility of further stimulus.”
Britain’s economy grew just 1.2 percent in the third quarter, its joint weakest pace since 2012. But the job market remains strong, a point Tenreyro highlighted, and business surveys conducted since Johnson’s election victory have shown a pick-up in business morale. – Reuters