New BoE policymaker Saunders says UK to slow less than consensus - FT

By Andy Bruce and David Milliken

LONDON (Reuters) - New Bank of England policymaker Michael Saunders said Britain's economy was likely to slow less than most economists expect in an interview published on Tuesday, but added that he would consider cutting interest rates if unemployment rose.

Saunders voted to keep interest rates unchanged at a record-low 0.25 percent last week, in his first Monetary Policy Committee meeting since joining the BoE from U.S. bank Citi, where he worked as its chief UK economist.

"In the near term, the next year or two, I think the economy will slow, but perhaps not slow as much as the consensus has been expecting," he said in an interview with the Financial Times, his first public comments since joining the BoE.

 

"This is partly because of the support from loose financial conditions, partly because of the underlying advantages - including supply-side flexibility - of the UK economy," he added in a video clip posted online.

After signs that the shock to Britain's economy was less severe than some forecasts, economists polled by Reuters last week saw a 35 percent chance of a recession over the coming year, compared with 50 percent shortly after June's vote to leave the European Union.

Last week the BoE raised its forecast for growth in the three months to the end of September to 0.3 percent from a previous forecast of a slowdown to 0.1 percent.

But it said the rebound in some economic indicators had not substantially shifted its longer-term view that Britain's economy would suffer as a result of the Brexit vote, and that most policymakers still expected to cut rates again this year.

The central bank forecast in August that growth would slow to 0.8 percent in 2017 from 2.0 percent this year.

The Reuters poll of economists produced a median forecast for annual growth to slow to 0.7 percent in 2017.

Saunders said higher unemployment was one factor that could make him back a rate cut.

"At the moment I think the economy still has some slack left in the labour market, you can see that in the subdued pace of pay growth," he was quoted as saying. "If the jobless rate were to rise, increasing labour market slack further, then that would be an argument in favour of lower interest rates."

(Editing by William Schomberg)