Momentum towards an interest cut is growing after a third member of the Bank of England’s rate-setting committee signalled that the British economy could require support from lower borrowing costs within months. Gertjan Vlieghe, an independent member of Threadneedle Street’s nine-member monetary policy committee (MPC) said on Sunday he would vote for a cut in rates later this month from 0.75% if key barometers of economic strength fail to reveal a bounce straight after the December general election. Vlieghe’s comments are the third indication in four days by an MPC member that a cut could come soon. In an intervention following signals last week from Mark Carney, the Bank’s governor, and Silvana Tenreyro, another external member of the Bank’s MPC, that a cut in rates could come within months, Vlieghe told the Financial Times that the upcoming decision would be a “close call”. “It doesn’t take much data to swing it one way or the other and the next few [MPC] meetings are absolutely live. “I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer,” he added.
At the latest MPC meeting in December, two members voted for an immediate rate cut – Jonathan Haskell and Michael Saunders. With three members now indicating they might join Haskell and Saunders, the balance of the MPC is now tilting towards a cut. At the outset of the year, the British economy is struggling for momentum, with a period of intense political and Brexit-related uncertainty weighing on growth at the end of 2019. The latest official growth figures, due on Monday, are expected to indicate that GDP fell in the three months to November, reflecting a downturn in business activity and consumer spending before last month’s election.
Some early indicators from the economy have indicated that Britain could stage a recovery in the opening months of the year, after Boris Johnson’s unexpectedly decisive election victory lifted some of the Brexit uncertainty holding back firms’ investment decisions. However, some economists warn that a lack of clarity over the UK’s future EU trading relationship – which will be subject to intense negotiations with Brussels this year – could serve as a continuing drag on growth.
On Friday, Tenreyro told a conference in London that she was ready to vote for an interest rate cut “in the coming months” if there was no sign of a bounce since the general election. At the late MPC meeting, in December, two members voted for an immediate rate cut – Jonathan Haskell and Michael Saunders. “If uncertainty over the future trading arrangement or subdued global growth continued to weigh on UK demand then my inclination is towards voting for a cut in bank rate in the near term,” she added.
Last week, Carney hinted that interest rates could be cut soon. Ahead of the MPC rate decision on 30 January – his last as governor before stepping down in March to be replaced by Andrew Bailey – Carney said: “If evidence builds that the weakness in activity could persist, risk-management considerations would favour a relatively prompt response.”