UK rate-setter hints at cut even if no-deal Brexit avoided

LONDON (AP) — U.K. interest rates could be cut even if the country avoids leaving the European Union on Oct. 31 without a deal, one of the Bank of England's nine top policymakers said Friday.

In a speech, Michael Saunders said the British economy has "weakened markedly" as a result of "persistently high Brexit uncertainties and softer global growth."

Even assuming Britain avoids leaving the European Union without a deal, Saunders said "persistently high Brexit uncertainties seem likely to continue to depress U.K. growth below potential for some time, especially if global growth remains disappointing."

"In such a scenario — not a no-deal Brexit, but persistently high uncertainty — it probably will be appropriate to maintain an expansionary monetary policy stance and perhaps to loosen further," he said.

Monetary policy would also take into account other factors, particularly changes in the exchange rate and fiscal policy, he said.

Saunders' comments suggest the central bank may decide to cut its main interest rate from 0.75% at its next policy meeting on Nov. 7, just a week after the country's scheduled Brexit date. A cut would mean the Bank of England joins the Federal Reserve and the European Central Bank in loosening policy.

The response to the speech in the currency markets was swift as none of the rate-setters had pointed so clearly to a rate cut. The pound fell around half a cent against the dollar, to $1.2275, though it has since largely bounced back.

It remains unclear whether Britain will leave the EU on Oct. 31. Prime Minister Boris Johnson has said it will do so come what may, but lawmakers have passed a bill that requires the prime minister to ask for an extension from the EU if no deal has been struck with the EU by Oct. 19.

Whatever happens, the British economy has struggled this year due to a combination of Brexit uncertainties and waning global growth. In the second quarter of 2019, the economy shrank by a quarterly rate of 0.2%. Though that is widely expected to be made up in the third quarter, few economists expect any material change in the outlook as long as the fog of Brexit remains.

Since Britain voted in June 2016 to leave the EU, business investment has been unusually weak, with firms worried about what the economic relationship will be between Britain and the EU. Around half of Britain's trade goes to the other 27 EU countries in a frictionless manner. A no-deal Brexit raises the prospect of new tariffs and barriers on trade.