April 10, 2018 / 9:37 AM / 4 months ago

Highlights: BoE mustn't dally over next rate hike - McCafferty

LONDON (Reuters) - The Bank of England should not delay raising interest rates again, one of its top policymakers said, pointing to the possibility of faster pay rises and the recent strong pick-up in the world economy.

Ian McCafferty, a member of the Bank of England's Monetary Policy Committee poses for a photograph at the Bank of England in London, Britain, April 9, 2018. Picture taken April 9, 2018. REUTERS/Hannah McKay

Following are highlights of Monetary Policy Committee member Ian McCafferty’s interview with Reuters which was published on Tuesday. For a full story, see.

INTEREST RATE OUTLOOK

“I am a great believer, as a rule in terms of making policy, that you always make the decision on the basis of the best evidence you have on the day. So I never pre-commit to what I am going to do, even if my previous behaviour has been announced.

“And I can say that, well, I can’t see anything in the data so far (to change my mind), but who knows when we get to May 10 what will happen.”

“On the basis of the February forecast itself I think there was a relatively strong argument for a rate rise if not immediately then in the very near future on the basis of that forecast alone.”

“It does seem animal spirits have returned to the global economy and things are picking up. As a result there is an argument to say that if we did nothing for a prolonged period you’d actually be possibly unintentionally injecting more stimulus.”

“If anything, I can see in terms of my modest differences relative to the central consensus forecast (that they) give me some upside risks at least to our inflation outlook. If anything I think slack is probably even smaller than our very small degree of slack at the start of the forecast.”

“My reading of all of the labour market data suggests that there is probably is none, to be honest.”

“On balance, those ... arguments give me some potential modest upside risks to the forecasts which would say to me relative to the forecasts: we shouldn’t dally when it comes to tightening policy modestly going forward.”

BREXIT UNCERTAINTY

“We are going to have stumbling blocks all the way for the next year, year-and-a-half, probably longer, through the negotiations and then after exit - and in terms of how the economy acts once we have actually left, which again there are some uncertainties about quite what will happen at that point.

“So that’s going to be a permanent feature of the landscape. But as you say there was nothing in the surveys that said that business investment or consumption behaviour had been altered as a result of any of the developments in the negotiations between January and now.”

STERLING

“Movements in sterling have been very highly correlated with short-term movements in perceptions of the Brexit negotiations, for the last two years or so really.”

“(Recent progress on Brexit) to me is a justification for a modest strengthening of sterling compared to where we were when there was a significant pricing-in on the part of markets of the potential for a hard and sudden Brexit deal - or lack of a deal, really - to come through.”

“Where sterling will go from here is going to depend crucially on quite what happens.”

EXPORTS

“Ben (Broadbent) has talked about the ‘sweet spot’ for exporters, and that does seem to be the case.”

“There were some anecdotal stories over a year ago now that I came across, and others came across, saying: ‘My continental supplier has decided to re-source his supplies to another member of the European Union because we are leaving in two years.’”

“The latest evidence suggests there hasn’t been as much of that in anticipation of leaving as we had possibly feared. So if anything that sweet spot remains quite potent.”

ECONOMIC UNCERTAINTY AND BOE GUIDANCE

“I believe that the economy is inherently more uncertain than many people give it credit for. Forecasts, if they are absolutely right on a two-year horizon, are normally right as much by chance as they are by design.”

“There are risks because of that uncertainty that if we give very definitive guidance, those will be taken as certainties. That, I think, risks credibility when on occasion the economy evolves in a way that’s somewhat different than we would have expected.”

“We always have debates on all of these issues at all times. Over the course of my time on the MPC we’ve had a lot of discussions. And I think the long-term trend over the course of the last decade for central banks has been to try to be more transparent, and as clear as we can be.”

“My worry as a forecaster always has been that when we make a forecast it is taken as absolute certainty, gospel truth, by most of the audiences.”

“Were we to therefore build on that belief that somehow we can forecast GDP growth to one tenth of a decimal point with fantastic accuracy all the time, to then use that as a basis for very specific numeric forecasts of Bank Rate, we would be doing the public not necessarily a great service.”

WAGES

“If you look at the surveys of labour market tightness and skills it is clear that the demand for labour remains strong. If anything the surveys of constraints on output and skills shortages are the highest for some considerable time, and have picked up relative to last year.”

“And the early data we have – the January AWE data, some of the industry data, XpertHR and other surveys that are trying to pick up settlements in the new year – do suggest some acceleration.

“And when I talk to companies they are telling me that they are now seeing more pressure in terms of a pick-up in job-to-job movement. The figures on that are back to the pre-crisis average, having been lower for some considerable period following the financial crisis and the recession.”

Reporting by David Milliken, editing by William Schomberg

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