(Bloomberg Gadfly) -- Bank of England committee member Michael Saunders said Thursday that it would be a mistake for policy makers to "maintain an overly loose stance as insurance" against the Brexit process becoming "bumpy." Hours later, European Union negotiator Michel Barnier said "no decisive progress was made" in the latest round of negotiations. The pound duly extended losses against the dollar.
Relations between the U.K. and the EU are worse than bumpy. The U.K. has to convince EU leaders by October that separation talks are sufficiently advanced for trade discussions to begin. The gridlock, not least over what the U.K. owes in past and continuing financial obligations, threatens to delay the start of framing that future relationship.
Traders see the first BOE rate hike in
August 2018
The prospect of no deal, crimping U.K. trade with the bloc, has prompted traders to scale back expectations for when the Bank of England might remove the emergency easing it introduced in the wake of last year's Brexit vote. Earlier this month, May 2018 was likely, then June. Now the futures market implies August is the earliest the bank will hike.
Saunders, along with colleague Ian McCafferty, has voted for a quarter-point increase in the Bank of England's policy rate since June. That rate was halved to 0.25 percent just over a year ago.
With the Brexit talks threatening to descend into chaos and acrimony, further undermining a British economy that's already the slowest-growing in the G7, the "insurance" of ultra-low interest rates looks more needed than ever.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net.
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