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-McCafferty Endorses Gentle Path of Rate Hikes Implied By Market Curves
By David Robinson
LONDON (MNI) - UK market rate expectations for a couple of hikes were
"reasonable," Bank of England Monetary Policy Committee member Ian McCafferty
In an interview on LBC radio, McCafferty said that current market pricing,
for a couple of hikes over the next two years, were acceptable "as a rule of
The August Inflation Report projections were conditioned on Bank Rate, the
key policy rate, rising from 0.5% before this month's meeting to 1.0% by Q1 2020
and then edging higher to 1.1% by Q3 2021. McCafferty, along with all the other
MPC members, voted to hike Bank Rate by 25 basis point at the August meeting,
lifting it to 0.75%.
On the MPC's projections, inflation on market rates was shown holding above
the 2.0% target throughout the three year forecast horizon, but dropping very
close to it at the end of that timeframe. McCafferty attended his final MPC
meeting this month.
"I shall miss it hugely," he told LBC, noting that in his six years on the
MPC he had been involved in just two rate hikes and one cut.
He said that the economy was "now at full employment."
The MPC left its estimate of the equilibrium, or non-inflationary, jobless
rate at 4.25% with the latest data showing it at 4.2%.
McCafferty defended the MPC's current approach of hiking Bank Rate before
unwinding quantitative easing, saying that the committee was more certain about
the likely impact of rate moves than of QE unwind.
The MPC wants to get Bank Rate up "to a point at which it could be
materially cut if the economy were to weaken," McCafferty said.
The MPC's guidance is that it will begin QE if and when Bank Rate rises to
around 1.5%, which it will fail to do in the next five years on current market
In his LBC interview McCafferty was subject to the usual protestations over
the MPC's assumptions that Brexit will harm the economy.
"I do think there will be some negative impact on the economy," McCafferty
If there were to be no deal with the European Union we "don't know how that
will play out in terms of consumer confidence and business confidence," he said.
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