He said the bank’s November forecast for a recovery in demand assumed the UK moved into a free trade deal with the EU this year and the recent uncertainty quickly faded.
“The risks of these assumptions are largely to the downside,” Ms Tenreyro said in a speech at the Resolution Foundation think tank in London. “If uncertainty about the future trade deal or moderate global growth continues to weigh on UK demand, then my inclination is to respond with a vote for a short-term rate cut.”
His comments came a day later Mark carney, the governor of the bank, said that evidence of persistent weakness in activity would favor a “relatively quick response,” and the pound fell further against the US dollar.
However, he indicated that a vote in favor of a cut may not be voted for for several months. “A key input into the decision is how uncertainty plays out in the future and how that impacts demand,” Ms. Tenreyro said in a question and answer session.
“We will be watching very closely how businesses and households respond to Brexit developments. We are talking about the next few months, or I am talking about the next few months, about the possibility of new stimuli ”.
The next decision of the Monetary policy committee (MPC) is January 30, which means that the “flash” estimates of economic activity on January 24 by the Chartered Institute of Procurement and Supply will be closely followed.
In November and December, the MPC voted seven to two to keep the bank standby rate at 0.75 percent, meaning that three members would have to switch sides to secure a rate cut.
Traders repriced the rate cut probabilities following Carney’s speech to the market, and are currently priced at a 10% cut probability this month, 20% in March and close to 40% in May, according to Deutsche Bank. “The BoE is at stake and it will depend on the data,” said strategist Francis Yared.
Analysts believe the bank will ultimately wait to see the Chancellor’s spending plans By Sajid Javid Budget in March and what stimulus to the economy it will provide.
Kallum Pickering, a British economist at German bank Berenberg, said Javid has already laid out plans for the fastest growth in daily government spending in 15 years in the September spending round, and is likely to follow up on public investment plans. .
He said a recovery in global demand should raise output in export-oriented industries, while a reduction in domestic political uncertainty over Brexit it should boost household confidence and underpin a rebound in real consumption growth.
Berenberg believes these factors will underpin an economic rebound, with real GDP growth accelerating from 1.3% in 2019 to 1.8% this year and 2.1% in 2021.
“We wait [the bank] to tone down your moderation quickly once you see clear evidence that the economy is improving on its own, ”Pickering said.