MPC warns of Brexit rate cut

Last week, the bank held the base rate at 0.75%.

MPC warns of Brexit rate cut

If Brexit uncertainty continues, the Bank of England could cut the base rate, Michael Saunders, a member of the Monetary Policy Committee (MPC) has warned.

Last week, the bank held the base rate at 0.75%.

But Saunders told local businesses in Barnsley: "If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in bank rate would be down rather than up.”

He said that even without a no-deal Brexit, a lot of uncertainty around Brexit would continue to impact the economy.

Saunders added: "In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing.”

Economist Bob Pannell,who’s independently consulting with the Intermediary Mortgage Lenders Association (IMLA), said that a rate cut is a possibility if the bank continues to see signs of economic weakness.

He said: “Michael Saunders was dealing with the hypothetical - if uncertainty continues to drag on the economy, a rate cut would be a sensible decision.

“He’s a long-established member of the MPC and sees there are some potential difficulties ahead and this is how he thinks the bank could address that if they arose.

“I think the bank has made it clear there are limits to what it can do but a small cut in interest rates would be a helpful measure to help the housing market keep ticking over.

“The housing market has been relatively resilient and there’s a danger that we’ve in the past perhaps subscribed too much to Brexit, but by and large the market has been performing pretty well.

“A 0.25% cut would help keep the housing and mortgage market on an even keel.It depends on the context where a rate move happens but a move to lower rates would help to counter negative influences.”

Pannell said that if the bank sees that headwinds are gathering, it’s good that at least one member of the MPC has scope to at least in part, alleviate that.

He added: “I suspect the bigger context of this is what happens when the Budget Statement appears.

“We’re in a slightly difficult terrain where the economy has some vulnerabilities looking ahead and Michael Saunders is simply signaling that if they come to pass, they’ll do what they can.”

Payam Azadi, director of Niche Advice, said that he believes rates won’t drop until we get some certainty with Brexit and know if the UK is leaving the European Union, staying in or getting an extension.

He said: “Mortgage lenders have their own stress rates. A drop would be good for those looking to get onto the property ladder but it’s whether lenders look to pass that saving on. We’re seeing competitive mortgage rates already so I don’t know how much more they can drop.”

Saunders highlighted that with a no-deal Brexit, the bank’s position is that all options would be open and he said that he still agreed with recent bank guidance that if Brexit uncertainty reduced and global growth quickened, there would be a small, slow rise in rates over the medium term.