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Bank of England dove says rates might need to rise in coming months

Reuters  |  LONDON 

By David Milliken

(Reuters) - The of might need to raise in the coming months, according to the rate-setter who was previously most strongly in favour of keeping borrowing costs at their record low.

The comments from Gertjan Vlieghe on Friday came a day after the said a majority of its nine policymakers believed a in the coming months was likely, if inflation pressure continued to build in the economy.

Investors took the comments from Vlieghe - who as recently as July warned against a premature - as a sign that the was moving as a whole towards its first increase in borrowing costs in more than a decade.

Sterling, which jumped on the BoE's announcement, climbed further after Vlieghe's comments on Friday, hitting $1.35 for the first time in 14 months.

Yields on two-year British government bonds hit their highest level since last year's Brexit vote.

"Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure," Vlieghe said in a speech to the Society of Business Economists in

"But the evolution of the data is increasingly suggesting that we are approaching the moment when Rate may need to rise," he said.

"If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Rate might be as early as in the coming months."

Vlieghe said there was still a risk that the approach of Britain's departure from the European Union in 2019 has a larger impact on the economy than seen so far.

"If that happens, monetary policy would respond appropriately," he said. "But for now, it seems the net effect of the many underlying forces acting on the UK economy is that slack is continually being eroded and wage pressure is gently building."

Philip Shaw, an economist with Investec, said there were still factors that could stop the from raising rates.

"But it does appear there is considerable backing for a prospective rise in interest rates, and sooner rather than later," Shaw said.

Vlieghe was the first MPC member to vote for a rate cut after the June 2016 Brexit vote, something the did in August last year.

In July this year, Vlieghe said a premature hike would be a bigger mistake than one that turns out to be slightly late.

Earlier this week, official data showed Britain's unemployment rate fell to a four-decade low of 4.3 percent while inflation rose to 2.9 percent, above the BoE's 2 percent target.

(Writing by William Schomberg; Editing by Hugh Lawson)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, September 15 2017. 15:23 IST
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