BOE may have a silent dissenter to rate hikes

Bloomberg

The Bank of England may have a quiet dissenter among its ranks when it comes to the need for higher interest rates this year.
In speeches, interviews and Parliament testimony, eight of the nine Monetary Policy Committee members, including Governor Mark Carney, have backed the view that tightening is warranted — and at a faster pace than previously thought. But Deputy Governor Jon Cunliffe has been noticeably quiet, raising questions about the views of one the MPC’s most dovish members.
Cunliffe, who’s in charge of financial stability at the BOE, objected to the rate increase in November, its first tightening in more than a decade, citing at the time a lack of domestic cost pressure. His silence on monetary policy now suggests he may still not be on board with the majority view, meaning there’s a chance of another split vote if the bank, as expected, moves again May.
“We’ve still got another month and a bit until the meeting. If the GDP data or wages disappoint, he could dissent,” said Alan Clarke, an economist at Scotiabank.
While one “nay” won’t stop the increase, it’s a reminder of the caution policy makers need to maintain because of Brexit and the larger-than usual uncertainty about the outlook. If growth wobbles or inflation slows sharply, the MPC’s broad cohesion could be shaken and the need for more tightening further out could be derailed.
A survey of executives by Deloitte published on Monday showed
that business optimism has improved, though firms are worried about weak demand and their risk appetite has diminished.
At HSBC, economists are less upbeat than the central bank on growth and wages and say further hikes after May will be difficult
to justify.
“Even if you do get a lift in wage growth in the next couple of months, which we think we will, a lot of that will be base effects,” said Liz Martins at HSBC. “So we are still not persuaded that by the end of the year, or in a year’s time for now, that there will be a case for a third rate rise.” Oxford Economics has also questioned how fast policy can be normalised, partly because it sees inflation dropping below the BOE’s 2 percent target within months. By comparison, the central bank sees it staying above that level for at least the next three years.
BOE policy makers said after their meeting last month that an “ongoing tightening” will be needed over the coming years. While the bank kept its key rate at 0.5 percent, two of the nine MPC voted for an immediate hike. Cunliffe voted with the majority for no change.