Ben Broadbent, the Bank of England’s deputy governor for monetary policy and a key policymaker, is not ready to raise interest rates just yet.
Speaking to Aberdeen’s local newspaper, the Press and Journal during a visit to the city on Tuesday, Broadbent said that “a lot of imponderables” within the British economy are stopping him voting to increase interest rates at the moment.
“If you look at the past six to 12 months, economic growth has been ok and the employment rate good. Unemployment has drifted down a little … and inflation is higher,” he said.
“There is reason to see the committee moving in that direction (higher interest rates) — but there are still a lot of imponderables.”
“In my opinion, it is a bit tricky at the moment to make a decision (to raise rates). I am not ready to do it yet.”
Broadbent’s assertion is significant in the context of the current debate over UK monetary policy. He is the last of the Monetary Policy Committee’s eight sitting members to publicly state his views on policy since the MPC voted 5-3 in favour of leaving rates unchanged at their last meeting in June.
Since that vote, speculation has grown that the committee could vote to increase rates from 0.25% back to 0.5% at its next meeting in August. That has been fuelled largely by the bank’s previously dovish Chief Economist Andy Haldane saying he could back a rate hike, and a series of mildly confusing comments from Governor Mark Carney in which he seemed to express two different opinions.
At its simplest level, the policy dilemma facing Britain’s central bank is that it must balance surging inflation brought on by the weakened pound since the referendum, with the slowdown in the economy, dwindling consumer spending and declining inward investment.
Inflation currently sits at 2.9%, well above the 2% target mandated by the government, while GDP growth in the first quarter of 2017 was just 0.2% and could stay at a similar level in the second quarter.
Since the referendum last year, the bank’s doves — those who are in favour of keeping policy loose — have been the dominant voices. However, since three of the MPC’s members voted to increase rates at its June meeting, the hawkish voices in the Old Lady of Threadneedle Street have become louder.
Broadbent’s comments, however, seem to quell the chance of a rate hike in August. Four MPC members — Broadbent, Carney, Gertjan Vlieghe, and Jon Cunliffe — have now publicly stated they aren’t ready for a hike, while just three — Haldane, Ian McCafferty, and Michael Saunders — back a hike.
The MPC’s other member, Silvana Tenreyro, has yet to speak publicly, having only been appointed to the committee in June. It is, however, thought that Tenreyro is likely to favour holding rates.
The pound dropped a little on Broadbent’s comments, falling around 0.2% against the dollar to trade at $US1.2817, as the chart below shows: