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‘BoE might need to raise rates in coming months’

The Bank of England might need to raise interest rates in the coming months, according to a rate-setter who has previously been strongly in favour of keeping borrowing costs at their record low.

The comments from Gertjan Vlieghe on Friday came a day after the BoE said a majority of its nine policymakers believed a rate hike in the coming months was likely, if inflation pressure continued to build in the economy.

“Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure,” Vlieghe said in a speech to the Society of Business Economists in London.

“But the evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to rise,” he said.

“If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Bank Rate might be as early as in the coming months.”

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Vlieghe said there was still a risk that the approach of Britain’s departure from the European Union in 2019 has a larger impact on the economy than seen so far.

“If that happens, monetary policy would respond appropriately,” he said. “But for now, it seems the net effect of the many underlying forces acting on the UK economy is that slack is continually being eroded and wage pressure is gently building.”

Vlieghe was the first MPC member to vote for a rate cut after the June 2016 Brexit vote, something the BoE did in August last year.

In July this year, Vlieghe said a premature hike would be a bigger mistake than one that turns out to be slightly late.

Earlier this week, official data showed Britain’s unemployment rate fell to a four-decade low of 4.3 percent while inflation rose to 2.9 percent, above the BoE’s 2 percent target.

(Reuters)

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