Bank of England’s Vlieghe hints at post-referendum rate cut

Added 20th May 2016

Bank of England Monetary Policy Committee member Gertjan Vlieghe has given a speech indicating an interest rate cut could be on the cards following the referendum on European Union membership.

Bank of England’s Vlieghe hints at post-referendum rate cut

Vlieghe struck a bearish tone in the speech, which was delivered at the London Business School.

He pointed out a number of current concerns around the strength of the UK economy, chief among them the uncertainty being created by the referendum.

“Despite repeated forecasts of stabilisation, UK GDP growth has continued to slow, from around 3% in 2014 to around 2% in 2015, to less than 2% in 2016 so far,” Vlieghe said. “This slowing has taken place against a background of persistently disappointing global growth, domestic fiscal consolidation, weaker than expected productivity growth, and, more recently, uncertainty about the upcoming referendum on the UK’s membership of the EU.”

“Inflation pressures remain subdued, although the inflation data have, on balance, not continued to surprise us to the downside over the past few months,” he continued. Headline inflation is well below target at 0.3% on the most recent data, although most of that reflects past falls in energy and food prices, an effect which is expected to fade.”

Vlieghe added that the upcoming referendum “poses particular challenges for monetary policy” but also said that a vote to remain could provide a boost.

“First, it makes the data less informative than usual about the underlying state of the economy,” he noted. "Uncertainty ahead of such a major event is bound to lead some firms and households to postpone important spending decision until after the event. Should the vote be to remain in the EU, I would expect to see an improvement in growth as the delayed spending is actually carried out."

The main challenge for the MPC in setting rates against this background, he explained, is that it does not know how much of the slowing in growth is due to the referendum, and how much of it reflects “a more fundamental loss of underlying momentum.”

Vlieghe joined the MPC relatively recently, in September 2015. Prior to that he was an economist at Brevan Howard Asset Management.

His full speech can be read here

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Biased Again

And I quote; "Should the vote be to remain in the EU, I would expect to see an improvement in growth as the delayed spending is actually carried out." Yes and any change in growth will be short lived whether we come out or stay in as reality enters back to the markets based on real time events worldwide. The real benefits of the OUT decision will be longer term.

Posted by: Glenn Robinson, 20 May 2016

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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