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More UK stimulus probably needed "at some point": BoE's Shafik

Wednesday, September 28, 2016 - 17:45

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Bank of England Deputy Governor Minouche Shafik said she expected the central bank would need to pump more stimulus into Britain's economy "at some point" as it adjusts to the shock of the vote to leave the European Union.

[LONDON] Bank of England Deputy Governor Minouche Shafik said she expected the central bank would need to pump more stimulus into Britain's economy "at some point" as it adjusts to the shock of the vote to leave the European Union.

"There is no doubt in my mind that the UK is experiencing a sizeable economic shock in the wake of the referendum," Ms Shafik said in a speech she was due to make on Wednesday.

The BoE has previously signalled that it was likely to cut interest rates later this year although there have been signs that the British economy did not suffer as big a hit from the Brexit vote as the central bank had expected.

Ms Shafik noted the possibility of reduced access for British companies to markets in the EU and said the uncertainty about the outcome of the "protracted process of withdrawing" from the bloc was weighing on prospects for business investment."

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The fall in the value of sterling since the referendum on June 23 was helping the economy which was flexible enough to cope with the change. But the process of adjustment would be painful, she said.

"That's where monetary policy can help, and it seems likely to me that further monetary stimulus will be required at some point in order to help ensure that a slowdown in economic activity doesn't turn into something more pernicious," she said.

"However, the likely timing of that stimulus will depend on the continued evolution of the data over the coming weeks and months," Ms Shafik said.

"Thus far, the welcome improvement in the forward-looking indicators suggests that the slowdown may not be as sharp or as sudden as we might have feared."

She said the BoE would "learn a lot" from official data for the post-referendum period, "and that will allow us to navigate by looking out the window as well as down at our radar."

The BoE cut interest rates to a record low of 0.25 per cent and announced a range of other stimulus measures in early August. It said then that most policymakers expected to cut interest rates again before the end of the year, if the economy performed as they expected.

Since then, signs have grown that economy has not slowed as sharply as the BoE predicted in August but it signalled earlier this month that it was still likely to cut rates, possibly at its next meeting in November.

Ms Shafik said a balance was needed between monetary and fiscal policy as well as structural reforms.

British finance minister Philip Hammond is due to announce his budget plans in November and has suggested he will approve a modest increase in public spending to help the economy as it adjusts to the Brexit vote.

REUTERS

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