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Ex-MPC member warns on interest rate cut

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A former member of the Bank of England’s Monetary Policy Committee has warned a cut to interest rates will harm the economy.

The MPC is expected to cut interest rates on Thursday, and Bank of England governor Mark Carney has already hinted that base rate will fall this year.

But writing in The Times, former MPC member Kate Barke says cutting rates would not raise household or business spending.

Barker, who sat on the MPC between 2001 and 2010, says a rate drop could harm bank profits, weaken the pound and deter household spending.

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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