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Interest-Rate Forecasts Aren’t a Solution for BOE, Saunders Says

Interest-Rate Forecasts Aren’t a Solution for BOE, Saunders Says

(Bloomberg) -- Publishing precise interest-rate forecasts isn’t the best way for the Bank of England to provide better guidance, according to policy maker Michael Saunders.

The bank could instead publish a range of where the benchmark rate might end up in 2-3 years time, he said. That’s a departure from his fellow policy maker Gertjan Vlieghe, who suggested earlier this month that officials publish a preferred interest-rate path to improve an “unnecessarily complex” system.

Interest-Rate Forecasts Aren’t a Solution for BOE, Saunders Says

“The idea that it’s useful for us to give guidance on the interest-rate outlook, especially for households and businesses, I agree with,” Saunders said, speaking in an interview Monday. “I’m less of a fan of precise quarter-point forecasts. For people who are not following the yield curve closely, that’s the sort of precision which is unnecessary.”

BOE Governor Mark Carney has also pushed back against the idea in the past, as has Deputy Governor Dave Ramsden. Carney is likely to field questions on the topic at the bank’s next press conference on Aug. 1, after officials announce their policy decision and updated forecasts.

Here are more highlights from the interview:

Things would have to get worse for a BOE rate cut

The hurdle for cutting rates in the U.K. is much higher than in the U.S. and Europe, according to Saunders. The cause of the slowdown in the U.K. is mostly related to Brexit uncertainty, he said, while in the U.S. there have been shifts in fiscal policy and adverse effects from global trade tensions that will probably continue to weigh on growth.

Fiscal policy will probably be “less of a headwind” in the U.K. going forward, he said, and the effects of the trade war aren’t as serious. If Brexit goes smoothly, he’s still more optimistic than his colleagues about the outlook.

The U.K. is experiencing a ‘home-grown’ slowdown

Inventory stockpiling and unwinding weren’t the only things impacting the economy in the first half. Weak confidence in the services industry and the performance of the construction sector shows there’s a “clear underlying, home-grown issue that’s not just to do with inventory unwind,” Saunders said.

Domestic factors are more to blame for the economic weakness than global ones, he said. The slowdown in global growth -- caused by the the lagged effects of policy tightening in the U.S. and China as well as trade tensions -- still spills over to the U.K., he said.

But surveys show that exporters are more confident than the overall sample of firms. “To me that is an indicator that, even with global trade tensions, the U.K.’s weakness is much more home-grown than external,” he said. It also means that if there’s a smooth Brexit, growth should improve.

Officials are keeping an eye on the labor market

On his regional visits across the country, Saunders said there’s a “common picture of a tight labor market, upward pressure on pay and really high Brexit uncertainty,” a picture that’s even more uniform across swathes of the U.K. than it was a few years ago. “It’s all sectors, all regions,” he said.

To contact the reporters on this story: Jill Ward in London at jward98@bloomberg.net;David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Andrew Atkinson

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