An influential member of the Bank of England’s monetary policy committee has said he would vote for a cut in interest rates later this month if key data do not show a bounce in the economy following the December general election.
Gertjan Vlieghe, an external MPC member, said his view on whether to keep waiting for an economic revival or vote to lower rates from 0.75 per cent to 0.5 per cent would depend on survey data released towards the end of January.
“Personally I think it’s been a close call, therefore it doesn’t take much data to swing it one way or the other and the next few [MPC] meetings are absolutely live,” he told the Financial Times.
“I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer.”
Mr Vlieghe has been a pivotal MPC member in the past: a hawkish speech by him in September 2017 foreshadowed the first BoE rate rise for a decade, which took effect two months later.
On Friday, Silvana Tenreyro, another external MPC member, told a Westminster conference she could also vote for a rate cut “in the coming months” if there was no sign of a pick-up in the economy.
She said if uncertainty over a post-Brexit trade deal between the UK and the EU continued to weigh on demand, “my inclination is towards voting for a cut in rates in the near term”.
At the last MPC meeting in December, the nine member committee voted 7-2 against cutting rates.
But if Mr Vlieghe and Ms Tenreyro joined Jonathan Haskell and Michael Saunders, two other external MPC members who have voted for a rate cut since November, they would only be one short of a majority in favour of looser monetary policy.
Data about activity in the construction, manufacturing and services sectors — captured in the purchasing managers’ indices — plus consumer survey information will be key to voting intentions at the MPC’s next meeting.
If the data are weak, the chance of a rate cut at the January 30 meeting appear to be much higher than the 21 per cent that is currently priced in derivative contracts and recorded on the BoE watch tool of the CME Group.
Financial markets are not currently pricing in any movement in rates above the current 0.75 per cent over the next five years.
Mr Vlieghe said conversations on the MPC had changed during 2019 from being about when to raise rates to discussing whether to cut them. “If you knew nothing about Brexit . . . and just looked at the UK data, you could reasonably make the case we should have cut rates already,” he added.
His main expectation was that the UK outlook would improve because there was a reduction in no-deal Brexit risks, plans for increased public spending and better news about a stabilised global economy.
But with evidence from companies about nervousness over the long-term trading position with the EU, he was concerned that if there was not a pick-up in the economy, monetary stimulus was required now.
“We will get a lot of information as soon as the end of January,” said Mr Vlieghe. ““We’ll get a lot of business and some household surveys that cleanly relate to the period after the election, so that will give us an initial read as to how people are responding.”
Additional reporting by Delphine Strauss in London
