BOE Vlieghe: Nearing Time When Bank Rate Rise May Be Needed

--Vlieghe: Bank Rate hike could be appropriate in coming months

By David Robinson

     LONDON (MNI) - Bank of England Monetary Policy Committee member Gertjan

Vlieghe said Friday the time for a Bank Rate hike may be drawing near.

     In a speech at the Society of Business Economists, Vlieghe, portrayed as

the most dovish of MPC members, gave his support to the majority view on the MPC

at its September meeting that a rate hike could be justified in coming months.

     Vlieghe said that it was still the case that we are in a low interest rate

era, and that while equilibrium real interest rate may have risen slightly with

consumer deleveraging coming to an end demographics and income distribution

continued to weigh on it. However, the low equilibrium rate does not determine

policy setting right now and Vlieghe said recent data supported the case for

tightening.

     "While ... medium-term considerations (about equilibrium rates) form an

important backdrop to my thinking about Bank Rate now and in the medium term,

they are not enough to guide actual meeting-by-meeting interest rate decisions,"

Vlieghe said.

     "Until recently, I thought the appropriate response of monetary policy was

to be patient, given modest growth and subdued underlying inflationary pressure.

But the evolution of the data is increasingly suggesting that we are approaching

the moment when Bank Rate may need to rise," he said.

     Vlieghe cited a string of recent data developments that bolstered the case

for tightening.

     Despite weak GDP growth economic slack continued to be eroded, with

employment growth accelerating and wage growth firming a little and surveys

suggesting "a modest rise in wage pressure in recent months."

     Vlieghe said that he expected this to result in more upward pressure on

inflation in coming months. He added that consumption growth had held up better

than he had expected and that the global economic background had improved.

     "If these data trends of reducing slack, rising pay pressure, strengthening

household spending and robust global growth continue, the appropriate time for a

rise in Bank Rate might be as early as in the coming months," Vlieghe concluded.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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