Interest rates could be set to rise in coming months

Senior officials at the Bank of England (BoE) appear to be at odds with one another over whether interest rates should be increased in the wake of post-election uncertainty.

Throughout June, rumours of an interest rate rise dominated the media until BoE Governor Mark Carney confirmed that borrowing costs should stay on hold on 20 June 2017, amidst concerns that Brexit negotiations could have a negative effect on the economy.

Mr Carney’s decision came shortly after a Monetary Policy Committee (MCP) meeting resulted in a 5-3 vote in favour of leaving rates on hold.

However, less than 24 hours after the Bank’s final decision was made public, Threadneedle Street’s Chief Economist, Andy Haldane, claimed that he was ‘seriously considering’ opposing the Governor’s move.

Speaking in Bradford, Mr Haldane justified his argument by claiming that the balance of risks had shifted significantly.

“If policy tightened ‘too late’, this could result in a much steeper path of rate rises later on, contrary to the MPC’s collective expectation that Bank rate would increase ‘at a gradual pace’ and to a limited extent,” he said.

Conversely, he added that the “risks of tightening ‘too early’” had shrunk in comparison, with growth and inflation showing “greater resilience than expected”.

Interestingly, the value of the pound bounced back slightly on 21 June after Mr Haldane’s comments were made public.

The BoE’s decision to keep rates on hold will stand for now, but Mr Carney himself has since voiced concerns that higher interest rates will be “necessary” once UK businesses have shrugged off Brexit-related uncertainties.

Link: Bank of England rift as chief economist ponders interest rate rise

Disclaimer

These articles are of a general nature and are not a substitute for professional advice. No responsibility can be accepted for the consequences of any action taken or refrained from as a result of what they contain.

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