"The prospective tradeoff is beyond my limits of tolerance, with the likelihood of an early elimination of slack and an extended period of above-target inflation."
Saunders voted to lift Bank Rate by 25 basis points at the June and August MPC meetings, having voted for unchanged rates at earlier meetings.
In a speech to explain the change in his vote, Saunders said that since the EU referendum, the MPC has sought the appropriate tradeoff between above-target inflation and below-potential output, but "the terms of that tradeoff have shifted markedly in recent quarters".
Citing examples, he noted that inflation has risen well above target, while spare capacity in the economy has been absorbed faster than expected.
Saunders continued: "The prospective tradeoff is beyond my limits of tolerance, with the likelihood of an early elimination of slack and an extended period of above-target inflation. We do not need to be putting the brakes on so much that the economy weakens sharply. But, our foot no longer needs to be quite so firmly on the accelerator in my view.
"I do not want to dismiss risks that the Brexit process might be bumpy, and could undermine business and consumer confidence. In such a scenario, inward migration might also be lower, limiting labour supply and demand. I presume asset markets would also adjust, including sterling. The monetary policy implications of this scenario are not automatic, could in theory go either way, and would depend on the combined effects on demand, supply, and the exchange rate. In my view, we should not maintain an overly loose stance as insurance against this scenario. Rather, we should be prepared to respond as needed if it happens."
Saunders also predicts that CPI inflation will edge back up to roughly 3% year-on-year in the coming months and "remain above the 2% target for some time".
