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Bank of England's Forbes sees no case for further rate cut

Thursday, September 22, 2016 - 20:29

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Bank of England policymaker Kristin Forbes said she did not see a case for a further interest rate cut to help Britain's economy after June's vote to leave the European Union, putting her at odds with the majority of her fellow rate-setters.

[LONDON] Bank of England policymaker Kristin Forbes said she did not see a case for a further interest rate cut to help Britain's economy after June's vote to leave the European Union, putting her at odds with the majority of her fellow rate-setters.

Ms Forbes established herself as one of the central bank's most sceptical rate-setters last month when she opposed restarting purchases of government bonds, although she did back a cut in the BoE's benchmark borrowing cost to a new record low.

Last week the BoE said most of its policymakers still thought the longer-term outlook for the economy warranted another rate cut later this year, even though the short-term hit from the Brexit vote appeared less severe than it had expected.

In a speech due to be delivered later on Thursday, Forbes - an external member of the BoE's Monetary Policy Committee - said she believed August's rate cut and measures to support bank lending were probably sufficient for now.

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"The initial effect on the UK economy of the referendum has been less stormy than many expected," she said. "Looking forward, I am not yet convinced that additional monetary easing will be necessary to support the economy."

Overall the economy appeared to be undergoing a "modest slowing", Ms Forbes said. Although some business investment seemed on hold - a BoE survey on Wednesday pointed to the weakest investment intentions since 2010 - she said consumer spending was resilient and net exports looked set to pick up.

Earlier on Thursday, the Confederation of British Industry said export orders grew rapidly in September, although slightly more slowly than August's two-year high, as the boost from the fall in the value of the pound after the referendum offset longer-term uncertainty about Brexit.

In August, the MPC as a whole forecast British economic growth would more than halve to 0.7 per cent next year from 1.9 per cent this year, before partly recovering in 2018.

Economists polled last week by Reuters broadly shared this view and most expected the central bank to cut rates again to 0.1 per cent before the end of the year.

In her speech, Ms Forbes said "adverse winds could quickly pick up" and prompt her to change her stance on rates.

In particular, she would look to see if British consumer demand remained resilient or if businesses shed jobs.

But referring to a Japanese print with which she illustrated her speech, she concluded that: "The fishermen in the boat need to stay vigilant, and may already be a bit seasick ... but if the current weather continues, they should be able to sail home without more aid."

REUTERS

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