While Brexit could weaken sentiment, lower inward migration, limit labor supply and further impact the pound, the necessary monetary policy response is not clear, he said in a speech in Cardiff, Wales on Thursday. Meanwhile, the trade-off between above-target inflation and below-potential output is now “beyond my limits of tolerance,” he said, explaining his decision to vote for a rate increase at the BOE’s last two meetings.
“I do not want to dismiss risks that the Brexit process might be bumpy, and could undermine business and consumer confidence,” Saunders said. “We should not maintain an overly loose stance as insurance against this scenario. Rather, we should be prepared to respond as needed if it happens.” [...]
“We do not need to be putting the brakes on so much that the economy weakens sharply,” Saunders said. “But, our foot no longer needs to be quite so firmly on the accelerator in my view. A modest rise in rates would help ensure a sustainable return of inflation to target over time.” [...]
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