Rates will go up, says Bank of England’s David Miles
The Bank of England David Miles, one of the nine members of the Bank’s Monetary Policy Committee (MPC) that sets interest rates, described the recovery as “resilient”, “”firm” and “sustainable”, and said it was increasingly likely he would vote to raise rates from a record low of 0.5% before leaving the committee next May, the Telegraph reports.
Miles said increases which stemmed from firmer UK growth was “good news” for the economy.
“Having Bank Rate at 0.5% is obviously not a normal or sustainable setting for monetary policy,” he said. “We have had such low rates because the economy took a huge hit in the aftermath of the financial crisis of 2008. Until fairly recently we have not had any sort of sustained recovery from that. Now we have one.”
Miles said subdued inflation would enable policymakers to raise rates gradually. He said the UK would not see a repeat of the “eye-wateringly sharp” increases of the late 1970s or 1980s, when the Treasury implemented a series of rapid rate hikes in order to keep a lid on price rises.
“This is more a case of scaling back the emergency medicine as the patient begins their recovery, rather than invasive surgery to deal with a sudden, life-threatening illness,” he said.
Inflation fell to 1.5% in May, from 1.8% in April. Prices rises have remained at or below the Bank of England’s 2% target for six consecutive months, in what many economists have described as the UK hitting a “sweet spot” of accelerating growth and low inflation.
Miles said slow wage growth suggested enough “slack” remained in the economy for the Bank to keep rates on hold in the immediate future, reinforcing the market view that rates will start to rise around the time of November’s Inflation Report.