BoE needs more evidence before rate cut, says Weale

Bank of England policymaker Martin Weale said on Monday the central bank needs more information on the impact of the UK’s vote to leave the European Union before cutting interest rates.

The BoE voted 8-1 last week to keep interest rates unchanged to the surprise of many economists who had expected a 25 basis point cut. The Monetary Policy Committee said it was waiting on economic data covering the period following the 23 June EU referendum to become available before taking action. However, the BoE indicated that it was likely to loosen monetary policy at the August meeting.

Speaking in London on the impact of Brexit on monetary policy, Weale said there was a high level of uncertainty surrounding the vote.

“Uncertainty points to the argument that we should wait for firmer evidence before making any policy change,” Weale said.

“The argument in the other direction is that, while I am very uncertain about the magnitude of the effect, it does seem to me quite likely that demand will weaken more than supply in the near term. So is there a case for a stitch in time?”

Weale dismissed concerns about the danger of the BoE disappointing markets with no action in August, saying “the Old Lady of Threadneedle Street is not a nurse to markets”.

The policymaker said he did not have a sense that consumers or businesses are “panic struck” by Brexit, in contrast to the reaction to the 2008 financial crisis.

He also said that the appointment of Theresa May as new Prime Minster may have abated some of the uncertainty. However, he expects incomes will likely decline as a result of leaving the EU.

He highlighted that wage growth had picked up in the past few months but inflation remains well below the BoE’s 2% target. The consumer price index rose an annualised 0.3% in May, unchanged from April.

“I will, at my final meeting of the Monetary Policy Committee, try to assess any overshoot of inflation beyond its target, whatever their cause, against possible shortfalls in GDP relative to the way I see the supply capacity of the economy,” Weale said.

His remarks deviate from that of BoE chief economist Andy Haldane who on Friday vowed to vote for a “significant” package of action in August.