Jon Cunliffe: Now is not the time to raise rates
BOE awaits investment and export advances, despite low interest of 0.25%
Bank of England ( BOE) Deputy Governor Jon Cunliffe on Wednesday signaled that now is not the time to raise interest rates, siding with his boss Mark Carney in a deepening split between officials on the need for higher borrowing costs.
It was heavily speculated last week that Governor Carney’s grip on decision- making at the BOE began weakening after chief economist Andy Haldane said that he might break ranks and join dissenters who voted this month for Britain’s first rate hike in a decade.
But Cunliffe said he wanted more time to see how improvements in business investment and exports could compensate for a consumer slowdown before deciding to raise interest rates from their record low of 0.25 percent.
He stressed weak wage growth and said the lesson from the last few years was that Britain’s economy had not generated much domestic inflation pressure, despite a sharp fall in unemployment.
Earlier this month, the BOE said a recent jump in inflation to 2.9 percent meant it was likely to exceed 3 percent this autumn – higher than the BOE forecast just a few weeks ago and well above its 2 percent inflation target.
Three out of eight members of the Monetary Policy Committee ( MPC) unexpectedly voted to raise interest rates, jolting financial markets. The ninth seat on the MPC is currently vacant.
The unexpectedly tight vote has added further questions over monetary policy, fueling uncertainty over Britain’s political outlook since Prime Minister Theresa May failed to win a parliamentary majority in a general election earlier this month.
Cunliffe said inflation overshooting the BOE’s target was “not a comfortable place” for any member of the MPC.
But he said it was important to consider how much of the overshoot was generated domestically, rather than as a product of the pound’s fall in the aftermath of last year’s Brexit vote.
Cunliffe highlighted that average earnings excluding bonuses rose at an annual rate of just 1.7 percent in the three months to April, the weakest increase since January 2015.
Even with Haldane’s surprise intervention last week, most economists think interest rates are unlikely to rise in the next few months.