British pound sinks as BOE members signal unwillingness to raise rates

Marcus Newton
October 18, 2017

When inflation rises, it's more likely the central bank will raise interest rates to help slow the pace of inflation.

Noting that country has not yet seen summit level of snuff, Carney said bank's primary mission was to realize inflation target, which is 2 percent.

Dave Ramsden, the new deputy governor of the Bank of England said that he was not in support of voting for an interest rate hike, calling into question when the BoE will implement its first interest rate hike in over ten years.

Sterling fell against the US dollar and British government bond yields also fell to their lowest since the days after last month's rate meeting after the comments from the BoE policymakers.

Carney made it clear that he did not think it was a good idea to build a "war chest" by raising rates a few times so they could be cut again in time for the next downturn.

"As a outcome we faced a trade-off - and we still face a trade-off - between having inflation above target and the need to support, or the desirability of supporting, jobs and activity".

"Despite continued robust growth in employment there is no sign of second-round effects onto wages from higher recent inflation", Ramsden told MPs.

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And Tenreyro, who is an economics professor at the London School of Economics, said: "My view is that we are approaching a tipping point at which it would be necessary or justified to remove some of that stimulus".

If it had risen any further, Carney would have had to write to Treasury chief Philip Hammond explaining why inflation is more than a percentage point above the 2 percent target and what he and his colleagues at the central bank were going to do about it.

The Bank of England is making plans for a "hard" Brexit, he noted, but was still hoping for a transitional deal.

Viktor Nossek, director of research at WisdomTree, an exchange traded fund provider, believed the Bank could even duck a rate rise next month.

Victoria Clarke, an economist with Investec, said she was surprised that Ramsden had come out strongly against the majority view in favour of a rate hike soon, but that that was countered by Tenreyro's positioning close to the majority view.

Although not unexpected, the steady rise in inflation increases the pressure on consumers as the spending power of their pound wanes.

He said the cut in interest rates implemented immediately after the European Union referendum result was the right thing to do to secure economic growth, but that the "trade off" between protecting against higher inflation and securing economic growth has changed, to the point where a rate rise would be unlikely to hamper growth, but could ease inflationary pressure.

Other reports by MaliBehiribAe

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