The Bank of England rate-setter who voted last week to cut borrowing costs said he had seen early signs that Britain will need more than just lower interest rates to counter the impact of the Brexit vote on the economy.
Gertjan Vlieghe wrote in an article published in the Financial Times that he saw an immediate need to cut rates and that this should be supplemented with a package of extra measures next month.
Vlieghe was the only member of the BoE’s nine-strong Monetary Policy Committee (MPC) who voted in favour of a rate cut at the central bank’s July meeting.
However, the MPC signalled that it would consider measures to boost the economy at its August meeting which is due to conclude with a statement on Aug. 4.
Many economists expect the BoE to revive its bond-buying programme as well as cut the Bank Rate below its already record low level of 0.5 percent.
“The precise implications (of the referendum result) for the economy are uncertain, although the general direction of travel is likely to be lower growth and higher inflation for a period, as a result of weaker demand, weaker supply and a lower exchange rate,” Vlieghe wrote.
“Early indications from business and consumer surveys, as well as the findings of the BoE’s own agents, support that assessment.”
He said the BoE should “look through” the short-term increase in inflation caused by the weaker pound.
“In financial markets, inflation expectations beyond the next few years have actually fallen further since the referendum, from already low levels,” Vlieghe wrote.
“I favoured an immediate interest rate cut, to be supplemented by a package of additional measures in August. What precisely that package should look like will have to be discussed over the course of the next three weeks.”
Source: Reuters (Reporting by Andy Bruce and William Schomberg; editing by David Clarke)