March 25, 2015 / 7:25 PM / in 5 years

Bank of England policymakers see scant need for rate cut

LONDON (Reuters) - Three Bank of England policymakers said on Wednesday they saw little chance of a cut in interest rates in the face of tumbling inflation, distancing themselves from the position of the central bank’s chief economist.

A pedestrians walks under an arch opposite the Bank of England in London March 5, 2015. REUTERS/Suzanne Plunkett

Bank of England chief economist Andy Haldane surprised some observers by saying last week that a recent sharp slowdown in inflation meant the bank was as likely as not to cut rates - a view previously rejected by Bank of England Governor Mark Carney.

David Miles, a member of the Bank of England’s Monetary Policy Committee who repeatedly voted for more stimulus in 2013, said in an interview with the Financial Times that deflationary pressures were “striking by their absence” in Britain.

British consumer price inflation hit an all-time low of zero percent last month, but the Bank of England has forecast that any foray into negative territory will be fleeting as falling unemployment and a gradual pick-up in wages should ensure strong consumer demand.

This contrasts with the situation in the euro zone, where earlier this month the European Central Bank launched a trillion-euro programme of bond purchases to bring sub-zero inflation closer to its target of just under 2 percent.

Miles said he could imagine the Bank of England raising rates while inflation was still significantly below its own 2 percent target because of the long time-lag that interest rate changes need to affect the economy and dwindling spare capacity.

“It is more likely than not that the next move in (interest rates) will be up. Quite when that will come will depend on how the data play out,” he said.

Financial markets do not expect the Bank of England to raise interest rates before the third quarter of 2016, several months later than they had priced in a few weeks earlier.

Earlier on Wednesday, Kristin Forbes, another member of the MPC, wrote in London’s Evening Standard that low inflation would be temporary and that monetary policy would need to be tightened as Britain’s economy recovered from the global financial crisis.

Deputy Governor Minouche Shafik, in an interview with a local business magazine, said inflation was low due to temporary factors such as a sharp drop in oil prices and stronger sterling.

“The Monetary Policy Committee has rightly said we shouldn’t change interest rates in response to something that is temporary,” she told Kent Business magazine.

Editing by Gareth Jones

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