The Bank of England’s chief economist has broken ranks to declare he could support a rise in interest rates later this year.
Andy Haldane was speaking almost a week after three members of the monetary policy committee surprised economists and financial markets by voting for a hike in a bid to control a surge in inflation.
He told an audience in Bradford: “A partial withdrawal of the additional policy insurance the MPC put in place last year would be prudent relatively soon, provided the data comes in broadly as expected in the period ahead.
“Certainly, I think such a tightening is likely to be needed well ahead of current market expectations.
“How soon is ‘relatively soon’? I considered the case for a rate rise at the MPC’s June meeting. I felt then there were strong grounds for holding back until later in the year.”
His words prompted a surge in the pound, which went up by almost half a cent and traded briefly above $1.27, reversing an earlier drop below $1.26.
Image: Andy Haldane and Mark Carney both said earlier this month that now is not the time for a rates rise
An increase would mean that those not on fixed rate mortgages could see their repayments go up.
Any increase this year would also take the rate back to its pre-Brexit level of 0.5%
On Tuesday, Bank of England Governor Mark Carney said now was not the time to raise interest rates.
Mr Haldane said he had held back from backing a rates rise in the June meeting because, despite upwards pressure on inflation, wages showed little sign of matching it and that there was still “some chance of a sharper than expected slowing in the economy”.
He said: “Both are reasons for monetary policy not to rush its fences. Nor does it need to do so, given the slow build of nominal pressures in the economy.”
The recent General Election had “thrown up a dust-cloud of uncertainty”, he said, adding that this had shown itself in a weaker exchange rate.
“It is unclear what twists and turns lie ahead, with potentially important implications for asset prices and, at least potentially, confidence among businesses and consumers.
“I do not think adding a twist or a turn from monetary policy would, in this environment, be especially helpful in building confidence, at least until the dust-cloud has started to settle.”
Adam Cole, head of FX strategy at RBC Capital Markets in London, said: “The Haldane comments are potentially more significant than the vote last week to the extent that he is firstly a Bank of England insider and secondly he has typically been one of the most dovish members.
“If his opinion is shifting then that is potentially significant news for rates going forward.”
Source: SKY News Feed