LONDON (Reuters) - Bank of England policymakers are increasingly split over the need to raise interest rates for the first time in a decade.
A 5-3 vote last week in favour of keeping borrowing costs unchanged was closer than expected, and on Wednesday the BoE’s chief economist surprised investors by saying he was close to voting for a rate hike too.
Some Monetary Policy Committee members argue that rising inflation requires a hike, especially at a time when they believe the economy is running at close to full capacity. But the majority say slow wage growth and Brexit uncertainties justify keeping rates at a record low.
Following is a summary of where MPC members stand in the debate which has caused big swings in the value of the pound in recent days. The next MPC decision is due on Aug. 3.
Carney sought to douse speculation about a rate hike when he said on Tuesday that he wanted to see how the economy copes in the coming months with the uncertainties caused by Britain’s planned departure from the European Union. He also said wage growth was “anaemic”, underscoring his concerns about the financial health of consumers who drive Britain’s economy and his doubts about medium-term inflation pressure.
Haldane surprised investors by saying, a day after Carney’s dovish speech, that he was likely to vote for a rate hike later this year, if the economic data come out as expected. Haldane was long considered to be one of the BoE policymakers who were most supportive of keeping rates low. He kept open the possibility of remaining in the majority camp by saying there was no rush to act, given the “dust cloud of uncertainty” caused by Britain’s inconclusive election this month.
DEPUTY GOVERNOR BEN BROADBENT - VOTED FOR NO CHANGE IN JUNE
Broadbent has not spoken publicly since May 11 and investors say his views will help them gauge the likelihood of a BoE rate hike. As deputy governor for monetary policy, Broadbent has tended to sound a similar note to Carney and in March he said sterling’s pre-Brexit fall was unlikely to give exporters a lasting boost.
As deputy governor responsible for keeping an eye on the risks to the economy from the banking system, Cunliffe has stuck closely to the monetary policy views of Carney.
The former hedge fund economist has a reputation as the BoE’s strongest advocate for keeping interest rates low. He said in March that inflation spiking above 3 percent - it has risen to 2.9 percent and looks set to go further - would not automatically push him to support higher rates. He has poured cold water on the argument of some colleagues that a pickup in British exports might offset the slowdown in consumer spending.
Appointed to the MPC only this week, her views will be critical in determining whether the BoE will change course. The London School of Economics professor is expected to back the status quo when she votes for the first time on Aug. 3. Economists say her record as a central banker in Mauritius looks dovish and that it is unusual for someone to vote against the majority on the MPC shortly after joining it.
The former Citi economist had dropped hints that he might back a rate hike before doing just that last week. Saunders said in April that the BoE should not use uncertainty about the exact terms on which Britain would leave the European Union in 2019 as a reason to keep rates on hold. He also said a modest rise in rates would still leave “considerable stimulus” in place.
McCafferty has supported higher interest rates on an on-and-off basis since 2014, but his decision to renew that push last week came as a surprise. In March, he highlighted a weak outlook for the economy, something many private-sector economists say remains the case now.
Note - Kristin Forbes also voted for a rate hike last week but she leaves the BoE this month, making way for Tenreyro. British finance minister Philip Hammond has yet to name a replacement for Charlotte Hogg, who stood down as deputy governor in March after a conflict-of-interest case.
Editing by Hugh Lawson