Interest rate hike “clearly likely” in coming quarters, BoE politician says

Bank of England policymaker Michael Saunders said the bank rate is likely to rise in the coming months.

In an online speech earlier today, Saunders said he voted to increase the bank rate to 0.25 at the November meeting held by the Monetary Policy Committee (MPC).

He said he did so because he believed the need for some withdrawal from the stimulus measures had grown stronger due to domestic capacity and price pressure, especially in the market. work.

At that meeting, much to the market’s surprise, the MPC voted to keep the base rate at an all-time low of 0.1 percent.

Saunders said if the economy grows “in line” with the Monetary Policy Report’s central forecast or expectations, “the direction of travel for the discount rate over the next few quarters is clearly likely to be out of whack. the rise”.

He said an interest rate outlook would be to withdraw the stimulus from monetary policy against the backdrop of a low neutral rate, as opposed to a shift to restrictive policy.

Saunders said: “It is likely that any hike in the bank rate will be limited as the neutral level of interest rates remains low. As long as you don’t delay.

However, he said the decision to raise the rate in December would depend heavily on the economic impact of the Omicron variant.

Saunders added: “At present, given that the new Omicron Covid variant has only been detected very recently, there could be particular benefits of waiting to see more evidence of its possible effects on the outcomes of public health and therefore on the economy.

“But a prolonged delay could also be costly. If the economy continues on its recent trajectory, maintaining the current highly accommodative policy stance would likely allow the labor market to tighten further and, with inflation well above target, heighten the risks of a further rise. long-term inflation expectations. That might require a more brutal and painful political tightening down the road. “

In its November Monetary Policy Report, the bank predicted that in the fourth quarter of this year the base rate will rise to 0.2%, in the fourth quarter of next year it will be 1%, and in the fourth quarter of this year it will be 1%. fourth quarter 2023, it will be 1.1%. According to its forecasts, the rate will fall back to 1% by the last quarter of 2024.

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