A top Bank of England policymaker has warned that even if Britain votes to stay in the EU, underlying weakness in the economy could mean that more support is required from the Bank.
Jan Vlieghe, one of the nine policymakers who vote on interest rates, has previously floated the idea of them being cut below zero. Speaking on Thursday, he again raised the prospect of rates coming down further from their record low of 0.5%, when he said the economy could require “additional monetary stimulus” if it does not rebound after a remain vote in the EU referendum on 23 June.
In a speech at the London Business School, Vlieghe echoed the words of his colleagues on the monetary policy committee (MPC) in saying that the referendum was making it harder to gauge the underlying state of the UK economy, which has slowed in recent months.
“The challenge for the committee is that we do not know how much of the slowing in growth is due to the referendum, an effect that should be short lived, and how much of it reflects a more fundamental loss of underlying momentum, which might be more persistent.”
Following a vote to remain, Vlieghe said he expected economic activity to pick up as the spending delayed until after the referendum by households and businesses kicks back in. However, he added that he would want to see “convincing evidence” of an improvement in the economic outlook.
“If such improvement is not apparent soon, this will reduce my confidence that inflation is likely to return to the target within an acceptable time horizon, without additional monetary stimulus,” Vlieghe said.
In an answer to a question after his speech, he said rate cuts and more quantitative easing should be among the options if the UK economy needs more support from the Bank.