Sterling climbs to its highest level since Brexit vote
In a speech today given by external Monetary Policy Committee (MPC) member Gertjan Vlieghe – who has previously been keen to hold rates low – the hawkish tone of the September meeting was reaffirmed.
“The evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to rise”, said Vlieghe at the Society of Business Economists’ Annual conference in London.
He noted that despite a clear weakening of GDP growth in the first half of the year, the amount of economic slack continues to be eroded.
“If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Bank Rate might be as early as in the coming months,” said Vlieghe.
Moreover, he added that wage growth is not as weak as earlier this year, while “some pay-related surveys also suggest a modest rise in wage pressure in recent months.”
The speech echoed comments made by BoE governor, Mark Carney, yesterday when he said “the possibility of a rate hike has definitely increased”.
It caused the pound dollar rate to climb to $1.36 and against the euro, it reached above €1.13.
If these labour market trends continue, Vlieghe said he would expect it to lead to an upward pressure on inflation. According to the MPC member, there are also some early signs of stronger consumption growth in Q3, while conceding that whether it will last is an “open question”.
By affirming that a rate rise may be necessary in the coming months, Vlieghe joined the majority of MPC members who attended the meeting.
Oxford Economics commented that, “while flexibility on the part of MPC members is to be welcomed, the case for tighter policy based on supposedly diminishing slack and rising wage growth is a slim one. A hike in Bank Rate in November still strikes us as unlikely,” it said.
The speech also touched on the uncertainty surrounding the Brexit process, and whether it will have “a larger impact on the economy than we have seen so far”. “If that happens, monetary policy would respond appropriately,” said Vlieghe.