BoE Chief: Monetary Policy Is Stimulative, Fiscal Policy Is Restrictive

The Singapore dollar is expected to weaken against the greenback in the coming months
Kang Wan Chern 16 Oct 2017 The Singapore dollar is expected to weaken against the greenback in the coming months
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18 October, 2017

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said inflation is likely to peak at 3.1% in October and return to target by late 2018, "discouraging" the Bank of England from raising interest rates a couple of times over the next 12 months.

The Bank of England's new deputy governor Dave Ramsden said on Tuesday he was not close to voting to raise interest rates, surprising some investors who are betting that the BoE will soon make its first hike in more than a decade.

Inflation in Britain rose at the fastest pace in over five years in September, remaining above the Bank of England's 2% target for the seventh consecutive month, after breaking through the threshold for the first time in three years in March.

Tenreyro, meanwhile, aired her opinion that she wasn't yet ready to vote for a rate hike.

It's because of this above-target inflation that Carney and others on the bank's rate-setting panel are expected to raise the benchmark rate by a quarter point from the record low of 0.25 percent at the next policy meeting on November 2. However, the headline inflation move was not matched in the RPI, with the annual rate here holding at 3.9 percent in September, slightly weaker than consensus expectations.

"Inflation rising potentially above the 3 percent level in the coming months is something we have anticipated", he told lawmakers on Tuesday.

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"I think we are back where we started in terms of the balance of views", she said.

One of the main reasons why inflation has spiked over the past year is related to the pound's sharp fall since the country voted to leave the European Union in June 2016.

The central bank's upcoming economic projections, released on November 2 alongside the rate decision, are set to show growth remaining weak and inflation edging lower. Nevertheless, Ramsden admitted that his opinion was not part of the majority of BoE policymakers that do believe an interest rate hike is necessary in the coming months.

Carney gave no further detail on when this might come, but reiterated that it was on the mind of the monetary policy committee and most members thought a raise "over the coming months may be appropriate".

BOE deputy Governor Dave Ramsden was answering United Kingdom lawmaker's questions in a parliamentary committee, alongside new external BOE policy setting member, Silvana Tenreyro. Figures due Wednesday are set to show that wage gains are lagging inflation by about a percentage point, meaning household incomes are falling, a trend that has the potential to depress economic activity.


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