The Bank of England does not have to cut interest rates further to tackle the negative effects of the Brexit vote, Kristin Forbes, a member of the central bank's monetary policy said. She added that the current interest rates, which stood at 0.25%, was good enough to prevent the economy from slipping into a recession. This was revealed during her speech at the Imperial College London on Thursday (22 September).
Forbes, who is also a professor at the Massachusetts Institute of Technology had backed a vote to cut interest rates from 0.5% to 0.25% in August. This was then amid a decline in the UK economy after the referendum decision. However, she now argued that the economy had not faltered to the levels that were predicted earlier and that she was confident it would recover without the need to cut rates to nearer 0%.
"The economy is experiencing some chop, but no tsunami…The adverse winds could quickly pick up — and merit a stronger policy response. But recently they have shifted to a more favourable direction," Forbes said.
"Looking forward, I am not yet convinced that additional monetary easing will be necessary to support the economy. The behaviour of UK consumers and businesses, and evolution of prices, will be critically important in determining the appropriate action," she added.
This comes alongside a new Brexit warning from the BoE. The UK economy faces a "challenging period" that could undermine financial stability in the short term, the central bank had said on Thursday.
Forbes went on to caution businesses and consumers that they could face some volatility in the future. She said there was a need for consumers to be resilient and businesses to continue hiring employees.
Linking the UK to a fishing boat, Forbes was cited by the Guardian as saying, "The fishermen in the boat need to stay vigilant, and may already be a bit seasick from the chop they have already encountered, but if the current weather continues, they should be able to sail home without more aid."
She also warned that the UK economy could go off-track if the country's central bank would get its forecasts wrong. "Will wages and domestic costs continue their gradual increase towards levels consistent with the 2% inflation target? How much and for how long will inflation be pushed up by the increase in import prices arising from sterling's depreciation?...And even if the UK manages modest growth and a restrained increase in domestic prices over the next few quarters, will there be any negative events originating abroad that present risks?" she asked.