Interest rates in the UK are more likely to be cut than hiked if Britain crashes out of the European Union without a deal, according to a senior Bank of England policymaker.
Gertjan Vlieghe, an external member of the central bank’s Monetary Policy Committee, told an audience in London: “In the case of a no-deal scenario, I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening.”
His comments come with just over a month to go before Britain’s departure from the bloc on March 29 and with the UK Parliament in a deadlock over Brexit, having rejected British Prime Minister Theresa May’s deal.
Last week, the Bank slashed its growth forecast for the British economy and warned about the mounting risk of a recession in the event of a no-deal Brexit.
On Wednesday, the Bank’s governor Mark Carney urged politicians to find a Brexit solution.
Mr Vlieghe said a no-deal Brexit without any transitional arrangements would lead to “economic disruption, which could possibly be severe”.
If a deal is reached which includes a transitional period, the pound would be likely to strengthen, which may lead to a tightening of monetary policy, he said.
However, Mr Vlieghe said that recent economic data, including inflation and GDP, pointed to a sluggish economy.
“Given that the data even in the past few weeks are suggesting the slowdown is continuing into the early part of this year, both domestically and globally, a lot needs to go right for this forecast to come to pass.
“I feel I can probably wait to see evidence of growth stabilising and inflation pressure rising before considering the next hike in Bank rate.”
January inflation fell to a two-year low of 1.8% and undershot the Bank’s 2% target, while recent GDP data revealed that economic growth slowed in the fourth quarter of 2018.