LONDON (Reuters) – The Bank of England should wait and see how Brexit unfolds before shifting its policy stance, given inflation is “reasonably well behaved” and growth modest, rate-setter Michael Saunders said on Wednesday.
While a smooth Brexit would probably mean the BoE would need to deliver a limited and gradual round of interest rate hikes, there remains a range of scenarios that have different implications for policy, Saunders said.
Britain is scheduled to leave the European Union on March 29 but Prime Minister Theresa May has yet to secure parliamentary approval of an exit agreement she struck with Brussels, raising the risk of a damaging no-deal departure or a delay.
“The possibility that monetary tightening might be needed in the future does not necessarily mean we need to tighten now,” Saunders said in a speech at Imperial College in London.
“Given that at present economic growth is probably not strong enough to create excess demand and inflation is reasonably well behaved, for now it makes sense to wait and to see how Brexit developments unfold.”
Saunders repeated the BoE’s view that policy could shift in either direction, depending on how Brexit turns out.
(Reporting by Andy Bruce, editing by David Milliken)