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Base rate cut will hit economy, says ex-MPC member

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A drop in Bank of England base rate will harm the economy, according to former Monetary Policy Committee member Kate Barker.

The MPC’s nine members will vote on interest rate changes this Thursday, according to The Times.

However, Bank of England governor Mark Carney has already hinted that base rate will fall this year.

But Barker says cutting rates would not raise household or business spending.

Instead, Barker says a rate drop could harm bank profits, weaken the pound and deter household spending.

The ex-MPC member wants the government to allow the deficit to increase.

She says: “The economic implications of the Brexit vote would be better tackled by loosening fiscal policy.”

“My contention is rather that a cut in the present circumstances might actually prove negative for the economy . . . The economy is slowing — and the cry is for a confidence-boosting cut in the Bank rate. I fail to see why a policy move which will prove bad for the economy should have that effect.”

Barker says the low cost of borrowing means a rate cut would not be economically helpful as its effects would be masked.

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