McCafferty urges BoE to lift inters rates now

Source: Dukascopy Bank SA
"By the middle of next year, the remaining level of slack is likely to be small, if any remains at all"
 - Ian McCafferty,  BoE policymaker


The Bank of England should start lifting interest rates now, as spare capacity in the UK's economy could be used up by the middle of next year, adding to inflation pressures. Ian McCafferty, one of two MPC members, who voted for rate lift since August, reiterated his belief that increasing borrowing costs now would help the central bank to raise rates gradually. His comments came on the back of soft economic data out from Britain, where inflation stands at 1.2%, the lowest level in five years and well below the BoE's inflation goal, as well as uncertain global economy outlook. Nevertheless, McCafferty highlighted that the amount of spare capacity in the economy had been used up quite quickly and would continue to shrink despite a possible moderate growth pace likely through the winter. He also said that growth of wages should accelerate, as unemployment rate tumbled to 6% in the three months to August, compared to 7.7% a year ago, and other indicators of the labour market point to improvement. Lower commodity prices and a strengthening of the Pound, which makes imports cheaper, were the main drivers behind the drop in inflation, according to MCCafferty.

The BoE slashed interest rates to all-time low of 0.5% in early 2009, at the height of the global financial crisis, and has maintained them unchanged ever since, even as the nation's economy began to recover more strongly in 2013. Minutes last week showed still the majority of rate-setters are firmly against raising interest rates now.


© Dukascopy Bank SA

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