The time for the Bank of England to start raising interest rates is getting closer, and economic data over the next few months will help determine exactly when that will be, a senior Bank of England policymaker said yesterday.
Ian McCafferty, a member of the Monetary Policy Committee who last year was in a minority calling for rate rises, said economic conditions were again getting nearer to warranting a rise in interest rates from their record-low 0.5 per cent.
“With some of the headwinds to the economy ... now starting to fade, we are approaching the time when monetary policy will need to begin its journey back to more ‘normal’ settings,” McCafferty said.
Sterling rebounded from a day’s low against the dollar after the BOE published the comments, which McCafferty made at a conference for economics teachers on Thursday.
Most economists polled by Reuters do not expect interest rates to rise until early next year.
The timing of the first rate rise will depend critically on the signals contained in the economic data over the coming months
McCafferty said he would be taking a particularly close look at measures such as unemployment and wage growth, and that he expected inflation to be back at its two per cent target by the end of 2017 and to overshoot it thereafter.
“The timing of the first rate rise will depend critically on the signals contained in the economic data over the coming months,” McCafferty said, according to a text of remarks he made at a BOE conference for economics teachers on Thursday.
McCafferty dropped his vote for higher rates at the start of this year, as tumbling oil prices pushed British inflation far below its two per cent target.
Consumer price inflation fell into negative territory for the first time since 1960 in April, and McCafferty said he expected it to remain around zero for a few months. Sam Hill, a London-based economist at Royal Bank of Canada, said McCafferty could vote for a rate rise within a few months, and expects the BOE as a whole to raise rates in November.
“Clearly he is wanting to look at how he can move to voting for a rate hike,” Hill said. “But he does acknowledge that in the short-term, some of the risks to inflation are to the downside.”