Three Bank of England policymakers said on Wednesday they saw little chance of a cut in interest rates in the face of tumbling inflation, distancing themselves from the position of the central bank’s chief economist. BoE chief economist Andy Haldane surprised some observers by saying last week that a recent sharp slowdown in inflation meant the bank was as likely as not to cut rates – a view previously rejected by BoE Governor Mark Carney.
David Miles, a member of the BoE’s Monetary Policy Committee who repeatedly voted for more stimulus in 2013, said in an interview with the Financial Times that deflationary pressures were “striking by their absence” in Britain. British consumer price inflation hit an all-time low of zero percent last month, but the BoE has forecast that any foray into negative territory will be fleeting as falling unemployment and a gradual pick-up in wages should ensure strong consumer demand.
This contrasts with the situation in the euro zone, where earlier this month the European Central Bank launched a trillion-euro programme of bond purchases to bring sub-zero inflation closer to its target of just under 2 percent. Miles said he could imagine the BoE raising rates while inflation was still significantly below its own 2 percent target because of the long time-lag that interest rate changes need to affect the economy and dwindling spare capacity.