Bank of England Deputy Governor Ben Broadbent said he has not been on the brink of voting for higher interest rates, unlike some of his colleagues, and labour costs in Britain need to grow quite a lot faster to get inflation back to the bank’s target.
Broadbent told Reuters the BoE had to balance “fairly robust” growth at home against a slowdown in emerging economies and he was not surprised financial markets had pushed back bets on when the central bank would start to raise rates.
While BoE chief economist Andy Haldane warned last week of a possible emerging market crisis, Broadbent sounded less worried, saying developing economies had been slowing for a while. He said the euro zone was doing better than in 2014.
“It has been true for some time that we have been having to weigh up what has looked like a fairly robust recovery in domestic demand against weakness in the rest of the world,” he said in an interview late on Wednesday.
Britain and the United States have seen rapid economic growth and falling unemployment over the past couple of years, pushing their central banks towards raising interest rates for the first time since the financial crisis.
Even so, the BoE’s rate-setters voted by 8-1 in August and September to leave rates at their record low of 0.5 percent, reflecting uncertainty about the global economy as well as an inflation rate currently languishing near zero.
Broadbent, speaking in his office overlooking a courtyard of the BoE, said he was not as close to voting for a rate rise as some of his colleagues who might have moved already had it not been for the big falls on China’s stock market.
“I was not one of those on the brink of voting for higher interest rates,” he said.
The former Goldman Sachs economist said it was not surprising that markets had recently pushed back expectations of when the BoE would raise rates given market turmoil and the U.S. Federal Reserve’s decision not to tighten policy this month.
“It’s an entirely predictable reaction of markets,” he said. Some investors were unsettled by an apparent lack of sure-footedness in China’s policy response, and a greater realisation of the economic challenges which China faced, he said.
“We are certainly not unconcerned (but) we have pointed for a while to downside risks in the global economy.”