Martin Weale, an independent member of the Bank of England’s Monetary Policy Committee, and one of Britain’s most senior economic policy advisors has warned that the central bank cannot stop Britain slipping into a recession this year if the economy is already starting to struggle in the aftermath of the UK’s vote to leave the European Union.
In an interview with the Financial Times, Weale — who has served on the MPC since 2010 and will step down in August — said that any monetary policy measures introduced by the BoE will inevitably take time to have a positive effect on the British economy, and as a result, will not be able to prevent a short-term recession. “If we’re talking about having an effect by the end of the year, there is very little that the bank can do,” he told the FT’s Chris Giles.
Weale did however urge further monetary stimulus at the Bank’s August meeting to protect the economy in the longer term.
Since the vote to leave the EU, predictions of a coming recession have been widespread. Last week’s disastrous PMI data from Markit pointed to the economy shrinking, while numerous economic research houses and banks say they see recession on the horizon. Among those to forecast recession is Credit Suisse which argued last week that the coming slowdown will cost Britain 500,000 jobs. Barclays has also said Britain is “on the cusp of recession.” Morgan Stanley also expects a shallow recession for the UK.
Prior to his interview with the Financial Times, Weale had publicly backed a “wait and see” approach in terms of beginning a new programme of monetary easing, but his comments in the paper mark something of a u-turn, with the PMI data a key driver of his change of heart.
Weale said that the PMI numbers — which showed their sharpest contraction since the financial crisis — will have a “material” effect on the Bank’s decision next week, and that they have provided him with a “signal” about the direction monetary policy should be heading
“I see things rather differently from what I would have done had we not had those numbers and the material point is that they were collected after July 12, so after the initial shock of the referendum,” he said.
“What I said last week is that I would like more information as well as more reflection and I have had more information. Although you can’t say there’s a clear signal, if you spend all the time waiting for a clear signal, it never comes.”
Weale’s comments to FT suggest that it is now pretty much inevitable the Bank of England will announce new stimulus measures in the form of a rate cut or a new programme of quantitative easing. He is now the fourth member of the MPC to publicly back more stimulus.
The MPC’s most hawkish member Gertjan Vlieghe voted to cut rates at the July meeting, while governor Mark Carney and BoE chief economist Andy Haldane have indicated that further stimulus will be forthcoming in August. Only one member, Kristin Forbes, has backed no stimulus, saying in a Telegraph article that the BoE should take a “keep calm and carry on approach.”
At its July meeting the Old Lady of Threadneedle Street was widely expected to cut interest rates from 0.5% — where they have stood for 88 consecutive months — to 0.25%, but shocked the markets by leaving policy unchanged.