Markets may be wrong in pricing in an interest rate hike only in 2019, latest comments from Bank of England policymakers suggest.
The central bank may raise interest rates sooner than markets currently expect, policymaker Martin Weale said in a newspaper interview published Friday.
“I would be surprised if people had to wait as long as markets are currently implying,” Weale told the Irish News. “But markets may well turn out to be right.”
Weale is the longest serving member on the Monetary Policy Committee and his term ends in July. He gave the interview during a visit to Northern Ireland.
A day earlier, Deputy Governor Jon Cunliffe noted that a huge change took place in market pricing during the past month. Markets are now pricing in no raise until 2019 instead they are looking for a rate cut in the meantime.
“I can’t see anything in the economic news…that would lead to a shift like that,” Cunliffe said in a speech in Brussels.
“My big picture of the world hasn’t changed with the market-yield curve,” he added. Citing recent data on consumer spending and labor market, the policymaker said a slow recovery is underway.
Following this month’s rate decision, economists had forecast an interest rate hike to come in the second half of this year, probably November.
Earlier this month, the Bank of England decided to keep the key interest rate unchanged at its record low 0.50 percent, where it has been since 2009.
The decision was unanimous for the first time in seven months after policymaker Ian McCafferty dropped his call for a quarter-point rate hike. The size of quantitative easing was maintained at GBP 375 billion.
The central bank said low inflation will continue to slow the increase in wage pressure in the near term. While inflation expectations remain well anchored, policymakers will remain watchful for signs that low inflation is having more persistent second-round effects on wages, the bank added.
Weale said inflation may take a longer period to return to the 2 percent target than the bank had expected. He said the volatility in the oil price have confounded the bank’s inflation projections.
“So there is a longer waiting period than we had expected but if we look at core measures of inflation, those are closer to the target but still below the target,” Weale said.
The policymaker also said that the effect of a stronger pound is not “going to last forever”.