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By David Robinson
LONDON (MNI) - A 25 basis point increase in UK Bank Rate would still leave
policy in stimulatory territory and would be equivalent to easing back on the
accelerator rather than applying the brakes, Bank of England Monetary Policy
Committee (MPC) member Ian McCafferty said Wednesday.
In an LBC interview McCafferty, one of the two members who voted for a rate
hike at the MPC's May meeting, said that his colleagues all accepted that if the
economy evolved as they expected that Bank Rate would have to be increase at
some stage. He said that inflation has held above the 2% target and that the
economy could withstand monetary tightening, with private sector debt having
come down a lot from its peak.
The headline inflation rate dipped to 2.4% in April but McCafferty said
that the was not convinced it would come down much further and much faster.
His remarks suggest that he is very likely to again back a hike at this
month's MPC meeting, with the policy decision to be announced June 21.
The MPC is set to publish in its August Inflation Report analysis of where
it thinks the neutral rate, the rate that is compatible with stable inflation
when the output gap is closed, is. The working assumption is that the neutral
rate is well below historic levels, but it may be on an upward trend.
He rejected the suggestion that reported problems in Brexit negotiations
weighed against tightening, describing the Brexit news-flow as "noise".
"There is an awful lot of noise that goes on in the public sphere which may
not reflect fully what is being said behind close doors either in Brussels or
here, either within the cabinet or discussing issues with the other 27," he
He said that from the outset of the Brexit process he had taken the view
that "We won't know what the end state will be until it is really all over ..
nothing will be final until it is all final."
He said that the MPC was not in a hurry to tighten and that Bank Rate would
only go up to a relatively low level.
McCafferty was asked about why UK productivity growth has been weaker than
in comparable advanced economies.
He argued that the UK had a "lower capital/labour ratio" and for years had
suffered from "lower levels of investment per worker".
--MNI London Bureau; tel: +44 203-586-2223; email: email@example.com