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Policy maker advises Bank of England to be 'a bit more activist'

Economic News

Policy maker advises Bank of England to be 'a bit more activist'

Fri, 11 August 2017
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Policy maker advises Bank of England to be 'a bit more activist'

(ShareCast News) - Michael Saunders, an external member of the Bank of England's monetary policy committee has said leaving the European Union will have long-term effects on the British economy while arguing there may still be a case to increase interest rates sooner rather than later.
In an interview with the Evening Standard, Saunders said that the economy will probably grow a "fairly sizeable" five percentage points less over the next 15 years than it otherwise would as a result of Brexit.

"But that's over a long period of time," he said in the interview, published Friday. "Setting monetary policy, we're not trying to determine the outlook for growth over the next 15 years, we're thinking about the next couple of years and I doubt if those long-run effects of Brexit come through immediately."

Saunders and Ian McCafferty, a fellow Brexit dissident were outvoted 6-2 when making the case for a 25 basis-point a rate hike in June, a move which would reverse the rate cut put in place a year ago.

With the unemployment rate at its lowest point since the 1970s he also worried that there was decreased economic "slack" to use up before wages and inflation push higher.

In February of 2016, Saunders told Institutional Investor Magazine that, "the consequences of exit, I think, are highly damaging for the economy," saying the options would only range from, "bad to awful," as Brexit had already begun to affect the long-term growth potential with lower rates of investment.

"Let's just say the Brexit process is bumpy and business and consumer confidence suffers, and that might at first point to downside risks to growth. But if at the same time Sterling falls, and the pound has been quite sensitive to Brexit, that might give some support to growth through exports, as well as pushing inflation up. How policy responds depends on all of that," he told the Standard.

While consumers have made slight cut backs on spending, the risk of major retraction is yet to become known. Signs of a sharp slowdown over a range of business surveys may necessitate a rethink, but the central banker stated he believed that growth would, "be okay and the jobless rate will continue to fall."

Saunders also weighed in on the debate regarding the factors which were weighing on wage growth, positing that it had to do with the ability of firms to hire large numbers of EU nationals "at will".

"The argument is basically if firms can hire large amounts of EU nationals at will, there's almost no level of UK jobless rate which puts significant upward pressure on pay, because there's this large pool of available labour [...] across other EU countries," Saunders said.

His remarks appeared to echo those from Ex-Governor Mervyn King to the BBC on 5 August to the effect that high levels of immigration were partly to blame for the lack of investment in providing those native UK workers who had become uncompetitive because of globalisation with the necessary skills.