Weale urges to hike interest rates in anticipation of build-up of inflationary pressure

Source: Dukascopy Bank SA
"Indeed, a pick-up in real earnings next year should enable the economic recovery to broadly maintain its current pace despite the euro zone's stagnation and onset of rising interest rates"
 - Samuel Tombs, Capital Economics


Martin Weale, a member of the Monetary Policy Committee, said that the pace of drop in the British unemployment rate suggest that wages will start to increase. Thus, Weale reiterated his view that the Bank of England should raise benchmark interest from ultra-low level of 0.5% to 0.75% in anticipation of a build-up of inflationary pressures. Higher wages raise costs for businesses and also result in increasing consumer spending, both drivers that consequently push prices higher. Weale voted for a rate hike in the August and September meetings of the MPC, although he along with Ian McCafferty were outnumbered by seven other policy makers, who insisted on no change in the BoE's monetary policy. Weale's comments suggest he again voted for a rate lift at the October meeting. The voting record for that gathering will be released on 22 October. The majority, including Governor Mark Carney, have referred to the "deterioration in the euro-area economy" as a potential risk to the UK's growth. Weale's comments came after data showed the inflation rate dropped to 1.2%, the lowest level in five years, and pay growth came at 0.9%. He said inflation, which has been below the BOE's 2% goal for nine months, has been "significantly depressed" by the stronger Sterling and lower commodity prices. There is a threat that if a rate hikes "were delayed, inflation would be pushed above target or a rather sharper increase in bank rate would be needed subsequently," he added.


© Dukascopy Bank SA

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