MPC member Gertjan Vlieghe says the Bank of England could cut rates even if UK stays in the EU
Interest rates could be cut after the referendum, even if the UK votes to stay inside the EU, a member of the Bank of England's monetary policy committee (MPC) has said.
Gertjan Vlieghe, who joined the MPC as an external member in September, told an audience at the London School of Economics (LSE) this evening that if there was no post-referendum bounce in the UK economy, the Bank might need to cut rates, unleash a new bout of quantitative easing or look at other ways of stimulating the economy.
Bank of England forecasts
| 2016 | 2017 | 2018 | |
| GDP growth | 2.2 per cent | 2.3 per cent | 2.3 per cent |
| CPI inflation | 0.4 per cent | 1.5 per cent | 2.1 per cent |
| Unemployment rate | 5.1 per cent | 5.0 per cent | 4.9 per cent |
The Bank of England's forecasts are based on the assumption that Britain votes to stay in the EU, in line with their norm of presenting models assuming that current government policy prevails.
The Bank believes a vote to leave the EU could present it with a difficult trade-off between containing inflation – expected to spike following a depreciation in the pound – and preserving the health of the economy.
But Vlieghe's comments suggest that the rate-setters could also have a dilemma even if the UK votes to stay.
"Following a vote to remain," Vlieghe said: "I would like to see convincing evidence of an improvement in the economic outlook.
"If such an improvement is not apparent soon, this will reduce my confidence that inflation is likely to return to target within an acceptable time horizon without additional monetary stimulus."
Inflation is currently running at 0.3 per cent, considerably off the Bank's official two per cent target. Vlieghe said that the MPC's current policies were broadly the right ones to bring this back up over the medium-term.
Vlieghe noted, however, that this was predicated on a post-referendum bump in economic activity. If deferred investment and output does not start to creep back after 23 June, Vlieghe is indicating the Bank may have to look at other measures to boost inflation.