A deputy governor of the Bank of England has cautioned against raising interest rates too fast, suggesting that a hike in August by the central bank is not a foregone conclusion.
Financial markets have been pricing in a roughly 70 per cent chance of a hike at the bank’s next meeting on 2 August and governor Mark Carney added support to that view in a speech last week.
The bank has previously cited indications that average annual wage growth is now rising to 3 per cent as an indicator of building inflationary pressure.
But Sir Jon Cunliffe said in a speech in Cumbria on Friday that policymakers need to be wary of “false dawns” on wage growth.
He also said that the UK economy was still only slowly healing from the global financial crisis a decade ago.
“That to me argues for the policy strategy that best and carefully nurtures the slow healing that I now believe is increasingly taking hold. In that respect, I think, looking to the medium term, there remains a case for a little ‘stodginess’ [on raising rates] yet.”
Sir Jon has been a dove on the Bank of England’s Monetary Policy Committee [MPC] over the past year, voting against raising rates last November.
“We may still be underestimating supply in the labour market,” he told business leaders in Kendal.
“[This] implies a bias to needing a little more confirmation at each stage that the supply side is evolving as we have forecast – a somewhat higher burden of proof that I hope will diminish as we learn more.”
The nine person MPC voted to keep rates on hold at 0.5 per cent in June, although three members, including the bank’s chief economist Andy Haldane, voted to increase them to 0.75 per cent.