New BoE rate-setter Saunders sees reasonable growth for UK: FT

September 20, 2016 12:43 PM EDT

Shoppers carry bags in London, Britain August 25, 2016. REUTERS/Neil Hall

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By Andy Bruce and David Milliken

LONDON (Reuters) - Britain's economy is likely to grow at a reasonable pace in the coming years, slowing less than most economists expect as it overcomes "modest" fallout from June's Brexit vote, new Bank of England (BoE) policymaker Michael Saunders said.

He said that there was still plenty of scope for the BoE to stimulate the economy further if necessary, in an interview with the Financial Times published on Tuesday.

Saunders voted to keep interest rates unchanged at a record-low 0.25 percent last week, in his first Monetary Policy Committee meeting since joining the BoE from U.S. bank Citi, where he worked as its chief UK economist.

"In the near term, the next year or two, I think the economy will slow, but perhaps not slow as much as the consensus has been expecting," he said in his first public comments since joining the BoE.

Saunders - who as a Citi economist thought it more likely that the BoE would raise interest rates after a vote to leave the EU - said his views about the impact of Brexit had changed in recent months, describing the fallout as "modest" in the medium term.

"The UK should be able to grow at a reasonable pace ... over the next 10-15 years," he was quoted as saying.

After signs that the shock to Britain's economy was less severe than some forecasts, economists polled by Reuters last week saw a 35-percent chance of a recession over the coming year, compared with 50-percent shortly after June's vote to leave the European Union.

Last week the BoE raised its forecast for growth in the three months to the end of September to 0.3 percent from a previous forecast of a slowdown to 0.1 percent.

But it said the rebound in some economic indicators had not substantially shifted its longer-term view that Britain's economy would suffer as a result of the Brexit vote, and that most policymakers still expected to cut rates again this year.

Saunders said he did not think the BoE was close to running out of measures to boost the economy.

"There is substantial scope to expand asset purchases if needed, and ... what you saw (at the August meeting) was that monetary policy including asset purchases did seem to have a substantial effect on asset prices," he said.

Higher unemployment was one factor that could make him back a rate cut.

"If the jobless rate were to rise, increasing labor market slack further, then that would be an argument in favor of lower interest rates," he said.

But the BoE had to watch carefully for signs that adverse effects of ultra-loose monetary policy might be starting to outweigh the benefits, Saunders said.

"I do not think we are at that tipping point, but that is something we have to be constantly on the alert for."

(Editing by William Schomberg and Louise Ireland)

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