"If those downside risks develop, risk management considerations argue for a relatively prompt monetary policy response in my view."
Saunders said that despite the encouraging news on vaccines, there "are some headwinds that could leave the economy stuck with relatively high unemployment and below-target inflation".
Saunders said: "If those downside risks develop, risk management considerations argue for a relatively prompt monetary policy response in my view."
He added that there "may be some modest scope to cut Bank Rate further but, if we do, it may be preferable to move in relatively small steps".
Saunders said that if more monetary easing is needed, "it is likely to be most effective if we use a range of policy tools".
So far this year, the MPC has cut Bank Rate to a record low of 0.1% and announced an additional £450bn of asset purchases, including the £150bn that was announced in early November.
Nevertheless, Saunders believes that monetary policy "may need to do more" if downside risks develop to underpin recovery as restrictions ease.
He said that "there may be some scope to cut Bank Rate further, but our approach should take account of ELB uncertainty" - the effective lower bound where, beyond a certain point, a further cut in Bank Rate would not provide extra stimulus and may even be counter-productive.
Saunders said that the experience of other countries with negative rates is that a rate cut below zero lifts growth in much the same way as a rate cut above zero.
Saunders said his judgement at present is that "the ELB for the UK is probably a little below zero", provided appropriate mitigations (eg reserve tiering, bank funding scheme) are in place.
