Interest rates could be reduced to almost zero if the UK leaves the European Union (EU) without a deal, according to Bank of England (BoE) monetary policy committee (MPC) member Gertjan Vlieghe.
The comments from Vlieghe are one of the strongest indications that we have received from an MPC member of the potential direction the BoE could take if Britain and the EU failed to reach an agreement by the Brexit deadline of 31 October.
Furthermore, Tory leader and Prime Minister contender Boris Johnson has pledged to take Britain out of the EU with or without a deal by the deadline, raising the potential for a no-deal Brexit, particularly when taking into consideration that Johnson is currently the front-runner of the Tory race.
During a speech at Thomson Reuters, Vlieghe said: “On balance I think it is more likely that I would move to cut Bank Rate towards the effective lower bound of close to zero per cent in the event of a no-deal scenario.”
Vlieghe, a former bond strategist at Deutsche Bank, stated it was “highly uncertain when I would want to reverse these interest rate cuts”, as it would depend on the rate of recovery from a potential no-deal shock to the markets.
Last month the MPC voted unanimously to maintain interest rates at 0.75 per cent, after raising it from a low of 0.25 per cent in August 2018.
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