LONDON (Reuters) - Bank of England Deputy Governor Jon Cunliffe on Wednesday signalled that now is not the time to raise interest rates, siding with his boss Mark Carney in a deepening split between officials on the need for higher borrowing costs.
Speculation mounted last week that Governor Carney’s grip on decision-making at the BoE was weakening when chief economist Andy Haldane said he might break ranks and join dissenters who voted this month for Britain’s first rate hike in a decade.
But Cunliffe said he wanted more time to see how improvements in business investment and exports could compensate for a consumer slowdown before deciding to raise interest rates from their record low 0.25 percent.
He stressed weak wage growth and said the lesson from the last few years was that Britain’s economy had not generated much domestic inflation pressure, despite a sharp fall in unemployment.
Asked in a BBC radio interview if now was the right time to raise interest rates, Cunliffe said:
“(Consumer spending) is slowing as households’ real incomes are squeezed by higher inflation, we expect some of that slowing to be offset by growth in business investment, growth in exports. And I want to see how that plays out.”
“(We) do have to look at what’s happening to domestic inflation pressure, and I think that on the data we have at the moment, gives us a bit of time to see how this evolves,” Cunliffe said.
Earlier this month the BoE said a recent jump in inflation to 2.9 percent meant it was likely to exceed 3 percent this autumn - higher than the BoE forecast just a few weeks ago and well above its 2 percent inflation target.
Three out of eight members of the Monetary Policy Committee unexpectedly voted to raise interest rates, jolting financial markets. The ninth seat on the MPC is currently vacant.
The unexpectedly tight vote added questions over monetary policy to uncertainty over Britain’s political outlook since Prime Minister Theresa May failed to win a parliamentary majority in an election earlier in the month.
Cunliffe said inflation overshooting the BoE’s target was “not a comfortable place” for any member of the MPC.
But he said it was important to consider how much of the overshoot was generated domestically, rather than as a product of the pound’s fall in the aftermath of last year’s Brexit vote.
Cunliffe highlighted that average earnings excluding bonuses rose at an annual rate of just 1.7 percent in the three months to April, the weakest increase since January 2015.
Even with Haldane’s surprise intervention last week, most economists think interest rates are unlikely to rise in the next few months.
One of the three MPC members who voted to hike rates, Kristin Forbes, has completed her term and has been replaced by Silvana Tenreyro, a trade-focused London School of Economics academic.
On Tuesday, the BoE tightened its controls on bank credit to more normal levels, deciding the risk had passed of a big hit to the economy and to lending after last year’s Brexit vote.
Reporting by Andy Bruce; Editing by Richard Borsuk and Andrew Heavens