BoE Sanders: Not decided on November vote, expects economy to perform better than forecast

The newest voting member of the Monetary Policy Committee of Bank of England, Michael Saunders, said in a speech in Manchester today that the economic forecasts of the MPC following the referendum were too pessimistic. He said that growth during 2017 was likely to be above 1%. He sees lower growth and higher inflation. 

Key quotes:

“I was not a member of the MPC at the August meeting but, without necessarily agreeing with every aspect of the MPC’s forecast, I largely share their view that the economy is likely to see somewhat lower growth and higher inflation in the next year or two. I also agree with the decision to loosen monetary policy in August to support the economy against near-term downside risks and to reduce risks of a renewed inflation undershoot over time.”

“I was not a member of the MPC at the August meeting but, without necessarily agreeing with every aspect of the MPC’s forecast, I largely share their view that the economy is likely to see somewhat lower growth and higher inflation in the next year or two. I also agree with the decision to loosen monetary policy in August to support the economy against near-term downside risks and to reduce risks of a renewed inflation undershoot over time.”

“I suspect the economy will not slow as much over the next year or two as implied by the MPC’s central forecast published in August. I broadly share the Committee’s view that Brexit is likely to have a modest adverse effect on long-run UK potential growth. Moreover, economic growth in Q3 probably did slow relative to the 0.7% QoQ gain in Q2. There appears to have been a marked dip in some sectors for at least a week or two after the Brexit vote.”

“To be sure, risks for growth are not all to the upside. The process of EU exit may be lengthy and bumpy. It is certainly possible that anticipation of EU exit will have a greater near-term adverse effect on the economy than the MPC expect, especially if EU nationals currently working in the UK decide to leave or business investment weakens really markedly.”

“I certainly do not want to give the false impression that monetary policy can immediately cushion the economy against any shock. Even with the recent monetary stimulus, the economy probably will slow over the next year or two. But, my key point is that the MPC does still have considerable flexibility to respond to economic developments, in either direction, in order to help stabilise the economy and anchor inflation close to target over time, even if not exactly at 2% every month.”