x
0

Bank of England's Saunders edges towards rate rise

EconomyApr 21, 2017 17:20
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A general view shows the Bank of England in the City of London

By Andy Bruce and David Milliken

LONDON (Reuters) - Bank of England policymaker Michael Saunders on Friday opened the possibility that he will soon join a minority calling for higher interest rates, predicting that both growth and inflation could well exceed the BoE's earlier forecasts.

Saunders, in a speech to small businesses in London, said he had not yet decided for certain how he would vote at next month's Monetary Policy Committee (MPC) meeting.

But he said rate-setters should not use uncertainty about the exact terms on which Britain would leave the European Union in 2019 as a reason to keep rates on hold indefinitely.

So far only one of the MPC's nine policymakers, Kristin Forbes, has backed an interest rate hike this year.

But Saunders' comments suggested he may have been one of the other unnamed MPC members who were close to joining Forbes, according to the minutes from last month's meeting.

He highlighted record employment in Britain and the likelihood that trade and investment will compensate for a slowdown in consumer spending, perhaps by more than the BoE had expected a few months ago.

"I judge that the current policy stance is clearly accommodative," Saunders told members of the Federation of Small Businesses.

"While not prejudging what I or the MPC might decide on monetary policy, a modest rise in rates would still imply that considerable stimulus remains in place, helping to support output and jobs," he added.

Saunders said raising interest rates too late had similar costs to moving too early, distancing himself from colleagues who have stressed greater risks from a premature rate hike.

"I'm not sure that one is a bigger error than the other," he said in a question and answer session.

J.P. Morgan economist Allan Monks said it sounded like Saunders could well vote for higher rates at the May 11 meeting, but Prime Minister Theresa May's shock decision to call a general election on June 8 might also influence his thinking.

Although the BoE operates independently of politicians, economists in the past have said it prefers to wait until after major political events before making changes to monetary policy.

Monks said he maintained his view that the majority of rate-setters will remain cautious for at least the next few months to assess the extent of any consumer slowdown.

Official data earlier on Friday showed retail sales posted their biggest quarterly fall in seven years during the first three months of 2017, as rising prices since last year's Brexit vote put more pressure on consumers.

Saunders said he "would not be surprised" if consumer price inflation reached 3 percent later this year or in early 2018, and said economic growth could maintain a year-on-year rate of 2 percent through this year and next.

The BoE's February forecasts showed growth slowing to 1.6 percent in 2018 from 2.0 percent this year, and inflation peaking at less than 3 percent.

"I want to stress that this prospective near-term inflation pickup does not imply that Brexit Britain will face persistently high inflation. Nor does it signal that the MPC has gone soft on our low inflation remit," Saunders said.

"Over time, the appropriate monetary policy can and will ensure that inflation returns to the 2 percent target," he added.

Bank of England's Saunders edges towards rate rise
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Please wait a minute before you try to comment again.
 
 
 
Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Add Chart to Comment
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.