Economy can take one rate rise a year, says BOE official
BEN BROADBENT, a deputy governor at the Bank of England, has attempted to jolt the markets out of their expectation that borrowing rates will not rise very much by saying one interest rate rise a year over the next three years would not be “particularly dramatic”.
Markets and economists expect just one rise over the next three years, taking the base rate to 1pc.
However, policymakers at the Bank have said that the economy could overheat and generate too much inflation if rates stay that low.
The Bank raised its growth forecasts on this basis in Thursday’s Inflation Report, but also warned it would push inflation to above 2pc in 2022, requir- ing more rate rises than economists expect. “The market is barely pricing one rate rise over the next three years,” Mr Broadbent told BBC Radio 4’s Today.
“That is rather a change from the situation six months ago when it was expecting one rate rise per year.
“The main reason our forecast got stronger is that the market has taken out a couple of the rate rises it had expected six months ago and it is that which is pushing up our forecast. Even then one quarter-point rate rise per year, I wouldn’t describe that as particularly dramatic. As we’ve said for the past few years we expect the path of interest rates, as and when they do go up, to be limited and gradual.”
However, Christian Schulz at Citi said the Bank was likely to raise to 1pc in August if the Brexit Withdrawal Agreement was passed in the coming weeks – a scenario he regarded as unlikely.
“Instead, more political turmoil may be ahead, with likely a new prime minister and snap general elections later this year and another Article 50 extension. The timings are uncertain, but from today’s perspective, the window for an interest rate hike could well close after the summer.”