The Bank of England’s top two monetary policymakers yesterday said UK interest rates may need to fall further, as surveys sustained their view that even a “sledgehammer” stimulus will not be enough to fully counter a post-Brexit vote slowdown.
Ben Broadbent, the Bank of England’s deputy governor for monetary policy, told Reuters he would support reducing interest rates again, while his boss Mark Carney repeated that rates could fall further if needed.
Their comments follow Thursday’s rate cut to a new record low of 0.25% and the launch of stimulus measures worth up to £170bn (€200bn) — a huge package designed to offset the shock from June’s vote by Britons to leave the EU.
“There was a majority that expected to vote to cut interest rates again, were the economy to unfold in line with forecasts, and yes, I was one,” said Mr Broadbent.
Despite the scope of the new stimulus plan, Mr Carney again emphasised that the number of unemployed was likely to rise by around a quarter of a million in the next few years.
A closely-watched survey of recruitment firms offered an early sign Bank of England might be right, while carmaker Nissan raised doubts about its long-term investment plans for Britain.
The British labour market entered “freefall” after the vote to leave the EU, with the number of permanent jobs placed by recruitment firms last month falling at the fastest pace since May 2009.
Most economists agreed on Thursday that the Bank of England’s stimulus will need to be bolstered by reforms and significant investment from the government to truly counter the downturn resulting from the vote to leave the EU.
But Mr Broadbent warned that no conventional monetary or fiscal tools could fully compensate for the deep structural changes to Britain’s economy caused by leaving the EU.
“There are limits to what monetary policy, indeed any demand management policy can do — conventional fiscal policy as well — to offset what is a structural effect on the economy,” he said.
© Irish Examiner Ltd. All rights reserved