BoE\u2019s no-deal Brexit predictions \u2018totally unrealistic\u2019<\/p>\n
The Bank of England (BoE)<\/a> appears to be divided on the future path of interest rates in the case of a no-deal Brexit<\/a>. Officially, the bank said rates are as likely to rise as fall. However, two Monetary Policy Committee (MPC) members – Silvana Tenreyro and Gertjan Vlieghe – have suggested that looser policy might be more appropriate. Former BoE rate setter Andrew Sentance said a no-deal will be \u2018quite a negative scenario for the UK economy\u2019. However, he is less pessimistic than the BoE, which warned in November that a no-deal would create the worst recession since the 1930s. Sentance said these predictions are \u2018totally unrealistic\u2019 and \u2018a product of the assumptions that they chose.\u2019 BoE governor Mark Carney has since wound back his negative forecasts telling the House of Lords economic affairs committee last week that while there \u2018will be a material economic shock\u2019 from a no-deal it could be less harmful than his November predictions. Sentance said a no-deal is \u2018something I don\u2019t want to see, and I hope we don\u2019t see.\u2019<\/p>\n Lower UK growth is the \u2018new normal\u2019 <\/p>\n Last week, the Organisation for Economic Co-operation and Development (OECD) downgraded its growth outlook for the UK along with most G20 economies over the next two years. The think tank now expects Britain will grow by 0.8% this year, falling below 1% for the first time in a decade. Sentance told IGTV the UK is entering a \u2018new normal\u2019 where \u20181% to 2% growth is quite good\u2019.<\/p>\n Brexit has impacted the UK economy through two key channels argues Sentance. Firstly, through the post-referendum sell-off in the pound which \u2018is still languishing in pretty weak territory,\u2019 causing a \u2018squeeze on consumers\u2019. Secondly through \u2018the uncertainty impacting investment\u2019. The UK has suffered a sharp slump in business investment, which shrank by 1.4% in the fourth quarter (Q4) of 2018. That was the biggest drop since the start of 2016 and marked the fourth straight quarter of declines.<\/p>\n Aside from the strain from Brexit, Sentance said \u2018we are reaching a more mature phase of the global economic cycle so the global economy is slowing down\u2019, arguing a global deceleration will weigh on UK growth via its trading partners.<\/p>\n Sentance says he\u2019s \u2018lost confidence\u2019 in MPC <\/p>\n Sentance has criticised the course of action taken by the UK\u2019s central bank in recent years. In an interview with IGTV, Sentance said \u2018I have lost confidence in their strategy of really trying to normalise monetary policy\u2019. He thinks the BoE will follow a \u2018rather predictable course of doing very little\u2019.<\/p>\n BoE doesn\u2019t have a \u2018very sound exit strategy\u2019 from low rates<\/p>\n The central bank\u2019s bank rate is expected to remain on hold at 0.75% at the next monetary policy committee (MPC) meeting on Thursday 21 March. Sentance said \u2018if I had been recommending a policy for the UK, it would have been, raise interest rates to somewhere between 2% and 3%\u2019 and \u2018then pause\u2019. Looking beyond the UK borders, his suggestions are similar to the path taken by the Federal Reserve (Fed)<\/a> in the US, which left rates unchanged in January and signalled a pause to future interest rates hikes following a steady stream of increases since 2016. Sentance said, \u2018the Fed has had quite a sensible policy.\u2019 Meanwhile in Europe, having ended quantitative easing (QE) in December, the European Central Bank (ECB) shifted back towards a more dovish stance last week by adjusting its forward guidance to suggest rates would remain lower for longer and by offering fresh cheap loans to eurozone banks to support lending in the economy. Sentance said \u2018the ECB is in a more difficult position because they\u2019ve been dabbling with negative interest rates and they don\u2019t seem to have an exit strategy\u2019, adding \u2018the BoE has a similar problem. We don\u2019t seem to have a very sound exit strategy\u2019.<\/p>\n UK monetary policy \u2018geared too strongly\u2019 towards inflation<\/p>\n