The Bank of England risks raising interest rates too slowly, one of its policymakers said on Monday, indicating a growing split on the bank’s Monetary Policy Committee.
In a speech to Solent University, Michael Saunders, an external member of the MPC, warned of the likelihood of the economy moving into “significant excess demand” because consumers were likely to spend more than the BoE forecast and the global economy would gain from reduced uncertainty.
He did not suggest when he would vote for an increase in interest rates and indicated that the central bank would not be able to offset the negative effects of a no deal Brexit. However he said the BoE should not always wait and see before taking action on rates.
“I want to stress that the MPC does not necessarily have to keep rates on hold until all Brexit uncertainties are resolved,” Mr Saunders said.
“There would be costs if we delay tightening until all the potential warning signs across pay, capacity and prices are flashing red. Such an approach would make it less likely that tightening would be limited and gradual, and more likely that the economy would face a painful adjustment.”
Other MPC members such as deputy governor Dave Ramsden have recently warned of slower growth than the BoE’s May forecast, indicating a growing split in views on the Committee.
Financial markets now think a cut in rates is more likely than a rise in the second half of this year, although almost all bets are on interest rates remaining unchanged.
