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The Bank of England’s monetary policy committee would be more likely to cut interest rates in the event of a no-deal Brexit, according to rate-setter Silvana Tenreyro.

Tenreyro’s comments adds further clues as to the direction of travel for interest rates if Britain leaves the EU without a deal.

Speaking in Glasgow, she said negative demand would outweigh the impact on supply and the exchange rate.

She said: “In my judgment, a situation where the negative demand effects outweigh those other effects is more likely, which would necessitate a loosening in policy,” she said in a speech in Glasgow.”

She added that a smooth Brexit outcome would not automatically lead her to voting for a hike.

Last month fellow rate-setter Gertjan Vlieghe also said a no-deal Brexit would most likely lead to an easing of monetary policy.

But the Bank’s official position has long been that the monetary policy response to Brexit would not be automatic and could be in either direction.

Governor Mark Carney, and deputy governor Sir Dave Ramsden have indicated the potential need for rate hikes if Britain leaves the EU without a deal.

Michael Saunders exercised caution last week and said there was no need to rush interest rate hikes until the implications of Brexit were fully realised.

The typically hawkish rate-setter said: “The possibility that monetary tightening might be needed in the future does not necessarily mean we need to tighten now.

“A range of alternative Brexit outcomes are possible, and these may have very different implications for the economy and monetary policy.”

Tenreyro echoed those sentiments, advocating the “wait and see” approach post-Brexit.

She said: “While I still envisage that in the event of a smooth Brexit we will need a small amount of tightening over the next three years, before voting for any rate rises I would want to be confident that demand was growing faster than supply.”

By Callum Keown

Source: City AM

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