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Bank policymakers soothe rate concerns

Posted: Thursday, June 26, 2008, 17:07 (BST)
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Even arch-hawk Tim Besley said he was keeping an open mind on rates though he had been thinking about rate rises at both the May and June MPC meetings.

More surprising was the news that fellow MPC member Kate Barker had also considered raising rates this month. As did deputy governor John Gieve and executive director Paul Tucker.

Many economists had thought the numbers contemplating rate rises at the last MPC meeting would have been fewer.

"What is apparent from the testimonies, is that if the Bank of England does change interest rates in the near term, it will be to raise them," said Howard Archer, economist at Global Insight.

"Much will also depend on just how weak growth is over the coming months and whether or not this increasingly limits companies' pricing power."

Gieve said recent consumer spending data - retail sales shot up a record 3.5 percent in May - had been surprisingly strong and had policymakers questioning whether the economy was really slowing enough to get inflation down.

"The message the BoE appears to be trying to get across is that it is in datawatch mode and that it requires both an observed slowdown in economic activity as well as stable wage growth to prevent it from raising rates," said Matthew Sharratt, economist at Bank of America.

"While, on balance, we look for unchanged rates this year as inflation peaks above 4 percent during the third quarter but at the same time GDP growth slows down sharply, we still see the BoE having an implicit tightening bias."



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