(Bloomberg) — Bank of England policymakers were growing more optimistic about the prospects for the UK economy in 2015, a year before voters upended the outlook with a decision to leave the European Union.
The central bank on Thursday released transcripts from meetings of the Monetary Policy Committee a year before the crucial Brexit referendum in 2016. They showed officials saw signs of a productivity pick-up and were discussing the prospect of increasing interest rates that at the time were set at historic lows.
The nine-member panel led by Governor Mark Carney didn’t discuss in depth the threat of Brexit, which since the vote in 2016 became a key factor dragging down the economy’s performance.
The transcripts and briefing documents released Thursday are part of the BOE’s effort to make its policy making more transparent. While the central bank releases minutes of its meetings along with rate decisions, it’s only the transcripts that show what each member of the committee was saying. It’s the first time the BOE has released those documents and other briefing materials given to MPC members.
Back in 2015, the eurozone was still gripped by a debt crisis and the UK was both outperforming the bloc and considered a bastion of political stability. The UK economy grew 3.2% in 2014 and 2.3% the next year.
David Cameron — who served as prime minister from 2010 to 2016 — had promised a referendum in the Conservative Party manifesto for the 2015 election. He only set a date for the Brexit vote in February 2016 and supported the campaign to remain. He resigned after the vote to leave triumphed, returning to politics in November when Prime Minister Rishi Sunak named him foreign secretary and to serve in the House of Lords.
Carney was criticized for warning about the economic impact of leaving the bloc in the run-up to the EU referendum. Following the decision to leave, the BOE cut interest rates to what was then a then-record low of 0.25% and announced more bond-buying to mitigate any hit to the economy.
While the decision to leave the EU did not trigger a recession that the BOE warned could happen, the central bank’s later analysis found that it has dampened business investment and hit trade quicker than expected.
Since then, the UK economy has been dogged by political uncertainty over the relationship with the EU. The scale of the hit from Brexit is still hotly contested with London Mayor Sadiq Khan saying on Thursday that it has cost the economy £140 billion.
Of those serving on the MPC in 2015, only Deputy Governor Ben Broadbent remains at the BOE. The documents show the members noted some signs of a swifter pick-up in productivity, which held back the weak recovery from the global financial crisis. For the meeting in October and November 2015, the documents quoted officials saying:
- Gertjan Vlieghe said, “I am cautiously optimistic that the recent pick-up in productivity growth can be maintained. I note the anecdotal and survey evidence that companies are putting in place productivity-enhancing investment to a greater degree now.”
- Deputy Governor Jon Cunliffe said, “There is also, in my view, an upside risk to productivity growth relative to our forecast. Having serially over-estimated the prospect for productivity growth in the past, we may now be making the opposite mistake.”
- Martin Weale said, “My inclination would be to take a view of productivity over the next year more optimistic than forecast,” adding that this could be offset by weaker-than-expected hours per employee.
- Deputy Governor Minouche Shafik said, “The data in the UK suggests that the economy is continuing, slowly but surely, on the path to normality.”
Though only rate-setter Ian McCafferty voted to start normalizing interest rates from their ultra-low levels in 2015, other MPC members were talking up the prospect of raising borrowing costs in the foreseeable future.
- “I do think there remain sufficient signs of strength in the economy that we are on the right path, and so I remain of the opinion that the next move in interest rates will be up,” said Cunliffe in November 2015.
- “This is a fairly healthy economy — an economy that seems well positioned for gradual increases in interest rates,” said Kristin Forbes in December 2015.
- “The main message I took away from this month … is that the process of normalization in the UK seems to be on track,” said Shafik in October 2015.
The BOE instead cut rates in August 2016 shortly after the referendum. It kept its asset purchase facility steady throughout 2015, not hinting at the further dose of stimulus it delivered in response to the Brexit vote and the pandemic.
