By David Milliken Sept 27 (Reuters) - British government bond yields fell to a three-week low on Friday after Bank of England policymaker Michael Saunders said it was "quite plausible" that the BoE could cut rates even if Britain avoids a no-deal Brexit next month. Most economists already expect the BoE to lower rates if Britain leaves the European Union without a transition deal next month, but until now it has given no explicit indication of what it would do in the case of ongoing Brexit uncertainty. In a speech to businesses in northern England, Saunders - the first BoE policymaker to call for rate rises in 2017 and 2018 - said his central case was that Brexit uncertainty would persist and keep British growth below its potential. "Growth has slowed to a mere crawl," he said. "I think it is quite plausible that the next move in Bank Rate would be down rather than up." [nL5N26I1FU] British government bond yields initially fell by 4-5 basis points across the board, with 10-year yields <GB10YT=RR> touching their lowest since Sept. 4 at 0.470% at 0710 GMT. Shorter-dated gilts, which are more sensitive to interest rate moves, did a better job of holding on to their price gains, with five-year yields <GB5YT=RR> still close to their three-week low of 0.298% at 1050 GMT. Short-sterling interest rate futures for September 2020 <FSSU0> looked on track for their biggest daily rise since July 2, representing the sharpest downward move in expectations for BoE interest rates in nearly three months. Another measure of interest rate expectations <BOEWATCH> now fully prices in a 25 basis point interest rate cut by August 2020, and sees a greater than 50% chance of a move before Governor Mark Carney is due to step down on Jan. 31. However, Saunders declined to comment on how widely shared his views were on the BoE's Monetary Policy Committee, which was more downbeat on growth this month but still voted unanimously to keep interest rates on hold. "Those of hawkish persuasion can continue to point to domestic factors such as well-anchored inflation expectations and relatively rapid pay growth, that mark the UK out from the U.S. and euro zone, where interest rates have recently been cut," Martin Beck of consultancy Oxford Economics said. "For now, we think these differences will be enough to stay the MPC's hand from loosening policy," he added. Dec long gilt future <FLGcv1> 134.13 (+0.28) Dec 2019 short sterling <FSSZ9> 99.26 (+0.05) June 2020 short sterling <FSSM0> 99.40 (+0.065) 10-year gilt yield <GB10YT=RR> 0.50% (-2 bps) -------------------KEY MARKET DATA--------------------------- Long Gilt futures <0#FLG:> Gilt benchmark chain <0#GBBMK=> Short Stg futures <0#FSS:> Cash market quotes <GB/GILT1> Deposit rates <DM=> Sterling cross rates <GBPX1=> UK debt speedguide [GB/DEBT] -------------------KEY MARKET REPORTS-------------------------- Gilts [GB/] Sterling [GBP/] Euro Debt [GVD/EUR] Dollar [USD/] U.S. Treasuries [US/] Debt reports [DBT] --------------------GILT STRIPS DATA ------------------------- Gilt strips data [GB/STRIPS1] All gilt strips <0#GBSTRIP=> Gilt strips IO <0#GBSTRIPIO=> Gilt strips PO <0#GBSTRIPPO> (Reporting by David Milliken; Editing by Toby Chopra) ((firstname.lastname@example.org; +44 20 7542 5109; Reuters Messaging: email@example.com)) Keywords: BRITAIN BONDS/
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