Three members of the Bank of England’s monetary policy committee have warned the UK remains on track to raise interest rates several times over the next couple of years, despite a global slowdown in trade and the likelihood of falling interest rates in the US.
The deputy governor, Ben Broadbent, said the Bank’s health check on the UK economy in early May showed it warranted higher interest rates than financial markets currently expect.
He said there was no reason to alter the Bank’s outlook when its monetary policy committee, which sets interest rates, meets next week.
Broadbent backed comments made by the Bank’s chief economist, Andy Haldane, and Michael Saunders, a former City analyst who is an external member of the nine-strong MPC.
Haldane said the time was nearing for a rate rise to nip inflation pressure in the bud, while Saunders said Brexit uncertainty was not a reason to delay rate rises.
Broadbent told a parliamentary committee: “Were the economy to develop in line with our projection … interest rates would probably have to rise by a little more than what was in the curve at the time of the forecast.”
He told MPs financial market investors disagreed with the Bank’s outlook, but he was untroubled by this given the deep uncertainty about Brexit that could change the outlook significantly.
The Bank’s forecasts assume Britain will avoid an abrupt departure from the EU.
However, the benign forecast was challenged by another MPC member, Gertjan Vlieghe, at an event in London. “The news since May I think has been … a little disappointing and in terms of both the global downside risks and the domestic downside risks my read is that they have both intensified,” he said.
The World Bank has forecast a slowdown in trade and a collapse in investment spending will push down global GDP growth to 2.6% this year, “before inching up to 2.7% in 2020”. Investors expect the US Federal Reserve to cut interest rates three times this year in response to a slowdown in the world’s largest economy.
Vlieghe’s comments, which are likely to be supported by other committee members including the Bank’s governor, Mark Carney, point to a potential rate rise – from the current 0.75% – by the Bank at its meeting on 20 June.
