Bank of England policy maker Martin Weale said the most likely scenario is that officials will begin increasing the benchmark interest rate from a record-low 0.5 percent in the spring of next year.
“I think it is very helpful that we try and explain that the most likely path for interest rates is that the first rise will come perhaps in spring next year,” Weale said in a television interview broadcast on Sky News today. “Then the path is likely to be relatively gradual.”
The pound erased its decline against the dollar after the comments and was little changed at $1.6680 as of 1:40 p.m. London time.
Weale’s remarks echo BOE Chief Economist Spencer Dale, who said last week that investor bets on a rate increase early next year are “reasonable.” With the U.K. economy strengthening, Governor Mark Carney this month refocused his forward-guidance policy toward the amount of spare capacity in the economy in a fresh attempt to persuade borrowers that borrowing costs will remain low for some time.
Market forecasts are for the benchmark rate to stay unchanged at 0.5 percent “until about the spring of next year and then rising to around 2 percent by the end of 2016,” Dale said in a BBC Radio 5 interview on Feb. 13. “That profile for interest rates looks reasonable.”
If the BOE did begin tightening policy then, that would be around the time of the general election in May 2015. “During an election campaign it would obviously be difficult, but the election campaign will last for three weeks,” Sky reported Weale as saying.
He also said that if earnings rise faster than forecast, “I couldn’t rule out the need for a rate rise coming earlier.”
Minutes of the February meeting of the nine-member Monetary Policy Committee showed officials were united on the need to keep the current policy stance. Policy maker David Miles said in a Bloomberg News interview this week that there’s a “range of views” on the panel about spare capacity that point to a wider debate about how much slack is the economy.
Weale dissented from the initial framework for forward guidance Carney presented in August, favoring tougher caveats on above-target inflation. Minutes of the February policy decision, when officials agreed to a revised approach to guidance, showed no details on members’ views of the new arrangement.
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