LONDON – The Bank of England faces another decision next month on whether to become the first of the world’s major central banks to raise interest rates since the coronavirus pandemic struck the global economy.
The BoE shocked financial markets on Nov. 4 when its policymakers voted 7-2 to keep Bank Rate at 0.1%, even as it said inflation was heading towards 5%.
Many investors had read previous comments by Governor Andrew Bailey as meaning a November rate hike was a done deal.
Since then, data has suggested the labour market withstood the end of the government’s furlough scheme – something the BoE wanted to see before any rate hike – and inflation hit a 10-year high of 4.2% in October.
The BoE’s Monetary Policy Committee is due to announce its next policy decisions on Dec. 16 and Feb. 3.
MPCMEMBERSWHOALMOSTBACKED A RATEHIKE ON NOV. 4
Nov. 15, a day before the latest jobs data: “I’m very uneasy about the inflation situation … I want to be very clear on that. It is not of course where we wanted to be, to have inflation above target. On the decision itself, however, it was a very close call in my view.”
“I think that the situation in the labour market is looking considerably tighter.”
Nov. 15: “I recognise on the one hand some of Michael (Saunders)‘s arguments that, if we don’t act, there is a danger that inflation achieves some self-sustaining momentum that we will have to resist down the road. But equally I think that if we act prematurely, there is a danger that we derail some of the recovery, which is still in some respects quite fragile.”
POLICYMAKERSWHOVOTED TO RAISERATES
DAVERAMSDEN, DEPUTYGOVERNOR (MARKETS & BANKING)
Nov 5: “That move in the UK (inflation expectations) above, and materially above, what was a relatively stable historical average, has been something I’ve been concerned about.”
Nov. 15 “The risk of delaying too long is that then, if and when interest rates do have to rise, they go up a little faster and potentially a little further… and also that inflation expectations, particularly among households and businesses, might drift up a little further.”
Nov. 15: “Going forward, the ability of firms to pass through any cost increase, one for one, on to their prices is in question … That puts a damper on inflation prospects in the medium term.”
Nov. 5: “Central banks, not just the Bank of England, will need to balance their inflation and real-economy objectives. This balancing requires in my view a cautious approach.”
BENBROADBENT, DEPUTYGOVERNOR (MONETARYPOLICY)
Nov. 4: “We have had a couple of episodes like this, notably after the financial crisis and the big fall in sterling when inflation got to 5(%), and it was transitory then and I would expect it to be transitory now.”
NOTSPOKEN ON MONETARYPOLICYRECENTLY
July 19: “In the immediate term, the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation. For the foreseeable future, in my view, tight policy isn’t the right policy.”
JONCUNLIFFE, DEPUTYGOVERNOR (FINANCIALSTABILITY)
July 14: “One shouldn’t expect the reopening of the economy to be smooth. This is not something that you can just close down and reopen without bumps in the way … We’re seeing a surge in demand. We’re seeing some constrictions in supply that’s driving inflation. How persistent is that (is the) clear question… We would expect some of these pressures, and we would expect transitory pressures at this stage.”