Table of Contents
Interest rates should be kept unchanged until there is more evidence that inflation is back under control, a key Bank of England official said yesterday.
Jonathan Haskel’s comments are the first by any member of the Bank’s nine-member Monetary Policy Committee (MPC) following a period of purdah since the general election was called.
Rates remain at a 16-year high of 5.25 percent and markets expect them to be cut at next month’s Monetary Policy Committee meeting after inflation fell to its 2 percent target.
Hawk: Bank of England rate-setter Jonathan Haskel (pictured) said the decline in inflation to its 2% target was temporary
But Haskel said: “I would prefer to hold rates until there is more certainty that underlying inflation pressures have declined sustainably.”
The comments failed to change market expectations for a rate cut, with traders pricing in a 60-40 chance the bank will act on Aug. 1.
At the MPC’s previous meeting in June, officials decided against a pre-election cut, but strongly hinted that a move in August could be in the offing.
This would represent a boost for millions of borrowers just weeks before the start of the new Labour government.
This comes after a protracted battle to reduce inflation, which hit a four-decade high of 11.1 percent, and some argue it is too early to declare victory.
Haskel and fellow MPC member Catherine Mann took an aggressive stance, continuing to vote in favor of the increases until February of this year, months after the majority decided to suspend them last summer.
In a speech at King’s College London yesterday, Haskel – who will leave the bank after the August meeting – admitted there were “considerable encouraging signs” on inflation.
However, as the Bank’s forecasts suggest, it said the decline in inflation to its 2 percent target was temporary.
Haskel said the “wage-price system” – that is, the way higher wages and prices can cause each other to push up – had experienced “a sequence of enormous shocks in recent years.”
That, along with “second-round” effects (where previous inflation creates higher wages and this fuels another round of higher prices) could push inflation up.
DIY INVESTMENT PLATFORMS
AJ Bell
AJ Bell
Easy investment and ready-to-use portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free investment ideas and fund trading
interactive investor
interactive investor
Flat rate investing from £4.99 per month
eToro
eToro
Stock Investing: Community of Over 30 Million
Trade 212
Trade 212
Free and commission-free stock trading per account
Affiliate links: If you purchase a product This is Money may earn a commission. These offers are chosen by our editorial team as we believe they are worth highlighting. This does not affect our editorial independence.
Compare the best investment account for you