Investing.com – Bank of England officials including deputy governor John Cunliffe, and Monetary Policy Committee (MPC) members Gertjan Vlieghe, Ian McCafferty and Michael Saunders largely repeated expectations that UK inflation would peak this quarter in the inflation report hearings held before the British Treasury Select Committee on Tuesday.
Cunliffe repeated that inflation in the UK was forecast to peak in the fourth quarter, while Vlieghe wanted to clarify that those expectations were based on the idea that oil prices and the pound would largely remain at current levels.
Cunliffe, who voted against the last BoE rate hike, explained that his dissent was based on a preference to wait until there was clearer evidence of wage growth.
In presenting his own decision to vote for the hike, Vlieghe admitted that the view on wage rises and its eventual effect on inflation was a judgement call. “There’s no science in that,” he explained. Vlieghe admitted that his own call was based on decreases in the unemployment rate and the under-unemployment rate, along with indications that firms were beginning to respond with higher wages in order to attract more qualified employees.
He suggested that the outlook was consistent with modest tightening of monetary policy.
Both Saunders and McCafferty highlighted the fact that central banks worldwide can’t possibly make promises about interest rates as those decisions will be determined by economic developments.
Saunders further reiterated that the BoE expects future rate hikes to be limited and gradual.
Regarding the BoE’s asset purchase program, known as quantitative easing or simply QE, Cunliffe insisted that the Bank has not “forgotten” about the issue and eventually expects a gradual reduction in order to avoid disruption.
Little movement was seen in the pound in response to the remarks as the members largely followed what the BoE has already outlined. GBP/USD traded at 1.3231 from around 1.3243 ahead of the testimony, EUR/GBP was at 0.8718 from 0.8858 earlier, while GBP/JPY traded at 148.84 compared to 148.80 previously.
Meanwhile, European stock markets traded mostly higher. London’s FTSE 100 traded up 0.21%, the Euro Stoxx 50 gained 0.32%, France's CAC 40 rose 0.47%, while Germany's DAX advanced 0.47%.