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Interest rates more likely to be cut after no-deal Brexit, says bank policymaker

File photo dated 21/02/19 of member of the Monetary Policy Committee of the Bank of England Dr Gertjan Vlieghe, who has said interest rates are more likely to be cut than hiked if Britain crashes out of the European Union without a deal. PRESS ASSOCIATION Photo. Issue date: Thursday February 14, 2019. His comments come with just over a month to go before Britain's departure from the bloc on March 29 and with Parliament in a deadlock over Brexit, having rejected Prime Minister Theresa May's deal. See PA story ECONOMY Vlieghe. Photo credit should read: House of Commons/PA Wire

By Maryam Cockar, Press Association City Reporter

Interest rates are more likely to be cut than hiked if Britain crashes out of the European Union without a deal, according to a senior Bank of England policymaker.

Gertjan Vlieghe, an external member of the central bank's Monetary Policy Committee, told an audience in London: "In the case of a no-deal scenario, I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening."

His comments come with just over a month to go before Britain's departure from the bloc on March 29 and with Parliament in a deadlock over Brexit, having rejected Prime Minister Theresa May's deal.

Last week, the Bank slashed its growth forecast for the economy and warned about the mounting risk of a recession in the event of a no-deal Brexit.

On Wednesday, the Bank's governor Mark Carney urged politicians to find a Brexit solution.

Mr Vlieghe said a no-deal Brexit without any transitional arrangements would lead to "economic disruption, which could possibly be severe".

If a deal is reached which includes a transitional period, the pound would be likely to strengthen, which may lead to a tightening of monetary policy, he said.

However, Mr Vlieghe said that recent economic data, including inflation and GDP, pointed to a sluggish economy.

"Given that the data even in the past few weeks are suggesting the slowdown is continuing into the early part of this year, both domestically and globally, a lot needs to go right for this forecast to come to pass.

"I feel I can probably wait to see evidence of growth stabilising and inflation pressure rising before considering the next hike in Bank rate."

January inflation fell to a two-year low of 1.8% and undershot the Bank's 2% target, while recent GDP data revealed that economic growth slowed in the fourth quarter of 2018.