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MPC's Saunders points to further rate cut

Saunders expects a further period of subdued growth and believes it could be appropriate to cut rates further.

Rozi Jones
15th January 2020
Michael Saunders Bank of England MPC
"If easing is needed, it should occur promptly."

The Monetary Policy Committee's Michael Saunders has stated that the Bank of England could cut rates further to counteract a "sluggish" UK economy.

During a speech in Northern Ireland, Saunders discussed his reasons for voting to reduce interest rates at the past two MPC meetings, pointing to softer global growth and remaining Brexit uncertainty.

Saunders believes the most likely outlook is a "further period of subdued growth", stating that "it probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target".

He added: "With limited monetary policy space, risk management considerations favour a relatively prompt and aggressive response to downside risks at present."

In last November’s Monetary Policy Report, the MPC’s central forecast was for subdued near term growth, and a pickup in the spring of this year based on the assumption of an orderly transition to a deep free trade agreement between the UK and the EU.

However Saunders believes that "there are still major uncertainties regarding the UK’s future trade relations with the EU and other countries, including the extent of any transition periods".

He added that “risks for the next year or two are on the side of a more protracted period of sluggish growth” the Bank of England's forecasts, stating that "if easing is needed, it should occur promptly".

Saunders' comments come as the ONS reports that CPI inflation fell to 1.3% in December to the lowest level seen since November 2016.

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