Toscafund economist takes aim at ‘hasty’ Bank of England

Bank of England building at an angle


Bank of England

The Bank of England reduced interest rates to a new low of 0.25% on August 4, the widely-expected cut among a number of measures aimed at helping the UK economy recover from the shock of the June 23 vote to leave the EU.

The central bank also pledged to buy as much as £10 billion of UK corporate bonds, and expand its asset purchase scheme for UK government bonds by up to £60 billion taking the total size of that initiative to £435 billion.

The corporate bond plan took some in the market by surprise and Toscafund economist Savvas Savouri, who predicted shortly after the Brexit vote that the country’s economy was set for a period of growth, said the Bank of England and its Monetary Policy Committee – which sets rates – had been “too hasty”.

He said the UK economy had already become more competitive since the referendum result, largely as a result of the decline in sterling and gilt yields, and a reduction in regulatory capital requirements for banks that has allowed them to lend more.

“Do not get me wrong, the Monetary Policy Committee’s actions – and the effect they have had to further weaken the pound – cannot fail to stimulate the UK economy,” he said. “My point is that it is not in need of any additional stimulus.”

• Ten things happening when the BoE last cut rates

In pointed remarks, he added that the package proved how “rubbish” Carney’s policies were and that the MPC was “in decay”.

Savouri said: “I am convinced that had we now had an MPC of the quality of the 1998 or 2008 calibre, it would have voted almost unanimously to keep policy unchanged until it met on September 15, by which time it could have made a reasoned response to post-referendum labour market and trade data, as well as figures for manufacturing, retailing and construction.”

A spokesman for the Bank of England declined to comment on Savouri’s comments but pointed to a statement accompanying the August 4 stimulus package, in which the central bank said: “By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown, and support the necessary adjustments in the UK economy.

“The degree and composition of stimulus is largely determined by the effects of the vote to leave the EU on demand, supply and the exchange rate.”

In a letter to investors sent shortly after the Brexit vote, Savouri described the economic arguments that followed as “hyperbolic” and predicted that UK growth could be up to 2.2% in 2017.

He was among a number of executives at prominent hedge funds to campaign openly for a Brexit. Others included Crispin Odey of Odey Asset Management and Paul Marshall of Marshall Wace.

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