'Sledgehammer' Needed To Cushion Brexit Blow

The Bank of England's chief economist has underlined the case for an interest rate cut in August saying it should risk "taking a sledgehammer to crack a nut" to cushion the blow from Brexit.

Andy Haldane said the Bank could not afford to tunnel its way gradually out of trouble with a "miniature rock hammer", in a reference to Tim Robbins prison film The Shawshank Redemption.

He said it needed to deliver more stimulus "promptly as well as muscularly" amid the threat of an economic slowdown and possible rise in unemployment, adding: "By promptly I mean next month."

Mr Haldane's remarks were published a day after the Bank's Monetary Policy Committee (MPC (KOSDAQ: 050540.KQ - news) ) - of which he is a member - surprised markets by deciding not to cut interest rates, but revealed that most members thought there would be action in August.

Expectations of a move had been raised following comments from Bank governor Mark Carney in the wake of the Brexit vote that the economic outlook had worsened and "some monetary policy easing will likely be required over the summer".

:: UK Lacks Negotiators For Brexit, Says Letwin

Mr Haldane pointed to the need for action citing evidence that uncertainty after the referendum meant that companies were "pausing or trimming" hiring and investment plans while consumer confidence and the housing market had also taken a hit.

He said: "I would rather run the risk of taking a sledgehammer to crack a nut than taking a miniature rock hammer to tunnel my way out of prison - like another Andy, the one in the Shawshank Redemption.

"And yes I know Andy did eventually escape. But it did take him 20 years. The MPC does not have that same 'luxury'."

The remarks coincided with figures from the Office for National Statistics (ONS) showing that Britain's construction sector shrank by a bigger-than-expected 2.1% in May, in the run-up to the European Union referendum.

It means the sector has contracted in every month but one up to May this year, and follows separate survey data suggesting that growth in the wider UK economy slowed to just 0.2% in the second quarter of 2016.

Mr Haldane's remarks were an updated version of a speech delivered in Port Talbot, south Wales, one week after the referendum - and made reference to the town's own economic uncertainty over the future of its steel works (Other OTC: UBGXF - news) .