BARNSLEY, England, Sept 27 (Reuters) - The Bank of England may well need to cut interest rates in the likely scenario that high levels of Brexit uncertainty persist, BoE policymaker Michael Saunders said on Friday in the first clear signal that the central bank is considering a rate cut.
"If the UK avoids a no-deal Brexit, monetary policy also could go either way and I think it is quite plausible that the next move in Bank Rate would be down rather than up," he told local businesses in Barnsley, northern England.
Last week, the Bank of England said Brexit uncertainty and slower world growth were increasingly causing Britain's economy to perform below its potential, but did not directly raise the prospect of cutting interest rates.
Prime Minister Boris Johnson has vowed to take Britain out of the European Union by Oct. 31, without any transition deal if necessary, but is in a stand-off with parliament which has voted to block a no-deal Brexit next month.
Saunders said his view was that even if a no-deal Brexit was avoided, high levels of Brexit uncertainty would persist and continue to act as a kind of "slow puncture" for the UK economy which had already caused underlying growth to slow to a crawl.
"In this case, it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing," he said.
Simply waiting to see what happened with Brexit risked leading to inappropriate monetary policy, and the cost of reversing a rate cut if the outlook brightened would be low, he added at the event hosted by the Barnsley and Rotherham Chamber of Commerce and Institute of Chartered Accountants.
"In general, I would prefer to be nimble, adjusting policy if it appears necessary to keep the economy on track, and accepting that it may be necessary to change course if the outlook changes significantly," he said.
Saunders said he still agreed with recent BoE guidance that a limited and gradual increase in interest rates would be needed over the medium term, if Brexit uncertainty reduced significantly and global growth perks up a bit.
In the event of a no-deal Brexit, Saunders repeated the BoE position that all policy options would be open, depending on the damage to growth and how much inflation spikes from a likely fall in sterling.
Earlier this month, BoE Governor Mark Carney estimated in a worst-case, chaotic scenario that a no-deal Brexit could reduce the size of the economy by 5.5%. The Paris-based OECD has predicted a 2% hit in the case of a more managed no-deal Brexit. (Reporting by David Milliken; Editing by Mark Potter)