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MPC member Martin Weale shifts stance to back stimulus call

Chris Giles
Martin Weale, a member of the Monetary Policy Committee at the Bank of England, speaks during an interview in London, U.K.
Simon Dawson | Bloomberg | Getty Images

One of the UK's top monetary policymakers has indicated he has changed his mind after a series of negative business surveys and now favours an immediate stimulus for the UK economy.

The new stance of Martin Weale, an independent member of the Bank of England's Monetary Policy Committee, all but guarantees that the central bank will announce a package of stimulus measures to fight a post-referendum downturn at its August 4 meeting. One of the nine committee members voted last month to cut rates and three have now said they are minded to do so.

In an interview with the Financial Times, Mr Weale also made it clear monetary policy would not boost the economy straight away, so any action would not save the UK from a recession if growth is beginning to shrink.

Only a week ago, Mr Weale gave a speech urging the BoE to wait "for firmer evidence" before cutting rates or expanding its quantitative easing programme to encourage spending.

More from the Financial Times:
BoE economist to back August stimulus
BoE's measured decision on rates
Bank of England holds rates despite Brexit concerns

But last week's weaker data has made him more inclined to act. Although a BoE survey did not show an immediate weakening in the economic outlook, he said he was concerned by pre-referendum data on wage growth, which was weaker than he had expected.

The clinching piece of evidence, he said, was the purchasing managers' indices on Friday, which showed business activity dropping to its lowest level since spring 2009.

"They are the best short-term indicator we have at the moment. I certainly feel they are very material for the decision we'll be taking next week," he told the FT, adding that they were "a lot worse than I had thought" and showed "expectations have worsened sharply".

"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," Mr Weale 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."

BOE move to stand pat was a surprise: Investor

Of other MPC members, Gertjan Vlieghe, voted to cut rates last month, while Mr Weale, Mark Carney, the BoE governor, and Andy Haldane have now said they were minded to do so at the August meeting. Only one member, Kristin Forbes, has indicated a desire to "keep calm and carry on".

After the August MPC meeting, Mr Weale is stepping down at the end of two three-year terms as an MPC member and returning to academia at King's College, London university.

One of the MPC's problems is that monetary policy works with a delay, so action in August is unlikely to give the economy a quick boost. "If we're talking about having an effect by the end of the year, there is very little that the bank can do," Mr Weale acknowledged, while insisting the BoE still had monetary weapons to fire in lower interest rates and an extension of QE. "Asset purchases are still likely to be effective," he said.

Mr Weale rejected criticisms that the BoE's warnings about the EU referendum outcome had created a self-fulfilling prophesy of doom. Pointing out that for most of his time on the committee the MPC had predicted better productivity growth and a healthier economy than materialised, those positive predictions had not come to fruition.

"I think it is the job of the committee to describe things as they see them and no more and no less," he said.

Over Mr Weale's six years on the MPC, interest rates have never been changed, although he has regularly voted in the minority to do so.

Once a critic of independent monetary policy because he feared government's would run profligate tax and spending decisions, forcing the central bank to have higher than desirable interest rates, he now says times have changed. "I have had no sense of the MPC and the Treasury trying to drag the economy in different directions," he said.

But Mr Weale has seen changes in his six years on the MPC. The policy decision meeting is now recorded and transcripts published with an eight-year lag. He says this has had little effect on the ability of the committee to have a spirited argument.

But the change in governor from Mervyn King to Mr Carney in 2013 did create quite a change, Mr Weale said, in that the MPC now spends much more time discussing moves in financial market

Mr Weale said he was far from sure this is an improvement because it was not clear "whether there are strong material signals from short term moves in financial markets versus the alternative view there's always something to talk about because [financial markets] are always doing something".

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