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Friday September 23, 2016
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City workers walk past the Bank of England in the City of London, Britain, March 29, 2016. — Reuters picCity workers walk past the Bank of England in the City of London, Britain, March 29, 2016. — Reuters pic

LONDON, Sept 23 — Bank of England policymaker Kristin Forbes said she did not see a case for a further interest rate cut to help Britain’s economy after June’s vote to leave the European Union, putting her at odds with the majority of her fellow rate-setters.

Forbes established herself as one of the central bank's more hawkish officials when she opposed restarting government bond purchases in August, although she did back a cut in the BoE’s benchmark borrowing cost to a new record low of 0.25 per cent.

At its September meeting, the BoE said most of its policymakers still thought the longer-term outlook for the economy warranted another rate cut later this year, even though the short-term hit from the Brexit vote appeared less severe than it had expected.

But Forbes — an external member of the BoE’s Monetary Policy Committee — said she believed August’s rate cut and measures to support bank lending were probably sufficient for now.

“The initial effect on the UK economy of the referendum has been less stormy than many expected,” she said in a lecture at Imperial College, London yesterday.

“Looking forward, I am not convinced that additional monetary easing will be necessary to support the economy.”

Overall the economy appeared to be undergoing a “modest slowing”, Forbes said.

Although some business investment seemed on hold — a BoE survey on Wednesday pointed to the weakest investment intentions since 2010 — she said consumer spending was resilient and net exports looked set to pick up.

The economy had more momentum than when the BoE made its last set of forecasts in August, potentially pointing to faster growth next year than had been pencilled in, she added.

“We could upgrade our forecast (in November) if we don’t get any more surprises,” she said in a question and answer session after her speech.

Earlier yesterday, the Confederation of British Industry said export orders had grown rapidly in September, although slightly more slowly than August’s two-year high, as the boost from the fall in the value of the pound after the referendum offset longer-term uncertainty about Brexit.

In an interview with Bloomberg News, Forbes said the BoE might have over-estimated some of the drag on growth from economic uncertainty.

Sterling gained against the dollar following her remarks.

Last week, the BoE said it did not think the outlook had changed much since August, when the MPC forecast that British economic growth would more than halve to 0.7 per cent next year from 1.9 per cent this year.

Economists polled by Reuters broadly shared this view and most expect the central bank to cut rates again to 0.1 per cent before the end of the year.

BoE Governor Mark Carney stayed away from British monetary policy in a speech he gave in Berlin at the same time as Forbes, instead focusing on the need for bonds to support investment in environmentally friendly projects.

In her speech, Forbes said “adverse winds could quickly pick up” and prompt her to change her stance on rates.

In particular, she would look to see if British consumer demand remained resilient, or if businesses shed jobs.

Referring to a Japanese print with which she illustrated her speech, she concluded: “The fishermen in the boat need to stay vigilant, and may already be a bit seasick ... but if the current weather continues, they should be able to sail home without more aid.” — Reuters 

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