BOE Must Tighten Policy to Stifle Inflation, Broadbent Says

Updated on
  • Says consumer debt levels not a factor against rate hike
  • Deputy Governor for Monetary Policy speaks on BBC Radio

The Bank of England is likely need to raise interest rates again in the coming years to damp accelerating inflation, and rising levels of consumer debt are not a deterrent, according to deputy governor Ben Broadbent.

“If you look at our latest forecasts, what those suggest is that the best guess of the MPC is we will require a little more” policy tightening, Broadbent said on BBC Radio 4’s “Money Box Live” on Wednesday.

He didn’t comment specifically on 2018, but reiterated that “another two or three” increases were possible over the three-year period of the forecasts.

The BOE raised rates for the first time in over a decade in November, and officials said then that further moves were likely needed over the next few years. Inflation is now at 3.1 percent, the fastest pace in more than five years and well above the BOE’s 2 percent target.

Quizzed by callers to the radio station, Broadbent defended the bank’s monetary policy since the financial crisis. One disgruntled saver even asked why he was “paying for the incompetence of the Bank of England.”

Broadbent was also grilled on consumer borrowing, which he noted has been growing “quite quickly” in the last three or four years.

Yet asked whether indebted households might restrain the bank from raising rates further, he said “no, I don’t think that’s the case” and that consumer credit and unsecured debt relative to household incomes are still lower than they were on the eve of the financial crisis.

The central bank is due to announce its next decision and publish a crucial update of its forecasts in February.

Governor Mark Carney has warned that Brexit is acting as a shock to the supply side of the economy, and could continue to do so, prompting tighter monetary policy. Officials have nevertheless stressed that the U.K.’s departure from the EU could require a move in rates in either direction.

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