Another member of the Bank of England's rate-setting monetary policy committee (MPC) has signalled their intent to vote in favour of slashing interest rates at next week's meeting, pushing expectations of a cut to a near-certainty.
Martin Weale, an independent member of MPC said today in the Financial Times last week's disappointing purchasing managers' index (PMI) had convinced him of the need to unlock more monetary stimulus.
The PMI data, published last Thursday, stunned markets as it pointed to the sharpest contraction since the recession. The pound immediately slipped in anticipation it would provoke action from Threadneedle Street.
Weale, who said just days before the PMI survey he wanted to see firmer data about the effect of the referendum on the UK economy, said today: "I see things rather differently from what I would have done had we not had those numbers.
"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."
Weale added the numbers were "a lot worse than I had thought [and showed] expectations have worsened sharply."
Three of the nine members on the MPC have now indicated they will vote for some form of monetary stimulus - either a cut in interest rates or an expansion of the Bank's quantitative easing programme. Weale's conversion is perhaps the most significant as he is seen as one of the more hawkish rate-setters.
Weale's comments pushed the probability of a rate cut to 95 per cent according to futures markets data compiled by Hargreaves Lansdown.
|MPC member||Likely vote|
Weale had voted in the minority for an increase in interest rates in late 2014, unlike Bank chief economist Andy Haldane and the newest external MPC member Gertjan Vlieghe, who are both towards the dovish end of the MPC spectrum and have also signalled they will vote for a rate cut. Kit Juckes at Societe Generale, crunching the numbers, said Weale who is preparing to attend his 72nd - and final - MPC meeting next week, has voted to hold rates 59 times and to hike them on 12 occasions.
Juckes added: "Clearly there is a debate within the MPC about how and when to start easing in response to the referendum result, but no real argument about the fact that the economic impact will be negative, significant, and will require easier policy ... We're going to get lower rates and more asset purchases."
The Bank shocked markets with its decision to hold off earlier this month. Futures prices indicated there was around an 80 per cent chance of the MPC slashing rates, while City A.M.'s Shadow MPC, typically much more hawkish than the Bank, even voted for a cut to interest rates for the first time since the recession.
"Markets are basically saying that an interest rate rise next week is a shoo-in, but don’t forget they got it badly wrong last time around. Predicting the voting intentions of nine people is a roll of the dice at the best of times, but it’s even more unpredictable so close to the referendum," said Laith Khalaf of Hagreaves Lansdown.
Sterling plunged in the minutes after Weale's comments were published, falling 0.5 per cent against the dollar. It has since recovered as the greenback lost momentum against a host of major currencies.