UK price pressures buy time on rates: BOE

Bloomberg

Bank of England (BOE) Deputy Governor Jon Cunliffe helped draw the battle lines for the August interest-rate decision, saying that policy
makers have time before they need
to hike.
While some members of the BOE’s rate-setting committee have argued that consumer-price inflation of 2.9 percent means an increase in borrowing costs from a record-low 0.25 percent is required imminently, Cunliffe said that has been driven by the pound’s depreciation since the Brexit referendum and that wage pressures have remained low.
Inflation above the 2 percent target is “not a comfortable place,” Cunliffe said in an interview on BBC radio on Wednesday. However, “we do have to look at what’s happening with domestic inflation pressures and on the data we have at the moment, that gives us a bit of time to see how this evolves.”
Kristin Forbes, who leaves the bank this week, was joined by policy makers Michael Saunders and Ian McCafferty in June in voting for an increase to the benchmark rate. Chief Economist Andy Haldane has also said that removing some stimulus in the second half “would be prudent.”
Cunliffe’s comments back those of Governor Mark Carney, who has maintained that the risks surrounding the U.K.’s divorce from its biggest trading partner mean now is not the time to tighten monetary policy.
The split on the Monetary Policy Committee is a healthy sign of debate about a “finely balanced” decision, according to former BOE interest-rate setter David Miles.
“There’s a reasonable case on both sides. It’s a pretty close run thing at the moment,” he told reporters in London on Wednesday.
“It’s pretty likely that at some point in the not-too-distant future we will start this sort of slow path of getting back towards something a bit more normal,” he said. “When you start this journey is not a matter of hard science, but I guess it starts sometime within the next year or so.”
Miles, an MPC member between 2009 and 2015 and now a professor at Imperial College Business School, said that “normal” for borrowing costs may mean the BOE having its main interest rate at about 3 percent, compared with about 5 percent before the financial crisis.