BoE Chief: Monetary Policy Is Stimulative, Fiscal Policy Is Restrictive

Robyn Ryan
October 18, 2017

Data earlier on Tuesday confirmed consumer price inflation rose to 3.0% in September, with economists and the BoE expecting it to peak at 3.1% next month, while Wednesday will see crucial data on average earnings, where growth is forecast to remain subdued.

The CPI data this morning revealed that prices of consumer goods, boosted by food and transport, are climbing at their highest rate since 2012.

Dave Ramsden, the new deputy governor of the Bank of England said that he was not in support of voting for an interest rate hike, calling into question when the BoE will implement its first interest rate hike in over ten years. After the last meeting, when seven of the nine panel members voted for unchanged rates, Carney put financial markets on notice that interest rates were likely to rise in the "coming months".

Ramsden told the questioning Parliamentary committee that he didn't anticipate inflationary pressures would build strongly enough in the coming months, to warrant an immediate rate hike.

And Tenreyro, who is an economics professor at the London School of Economics, said: "My view is that we are approaching a tipping point at which it would be necessary or justified to remove some of that stimulus".

The pair were speaking to the Treasury Select Committee.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said inflation is likely to peak at 3.1% in October and return to target by late 2018, "discouraging" the Bank of England from raising interest rates a couple of times over the next 12 months. He added that fragmenting the European clearing system would "create costs for the European real economy".

The Bank of England's MPC is expected to sanction a quarter-point rise in Bank Rate during its meeting on 2 November. Inflationary pressures have been mounting since the European Union referendum result in 2016 collapsed the value of the British pound, resulting in more expensive imports.

(Update:) Inflation has hit a five-year high of 3% and the question on everybody's lips is will the Bank of England raise interest rates next month? That suggests investors are now less certain of a November rate hike.

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