BoE may need to raise interest rates ahead of expectations, policymaker suggests

The Bank of England (BoE) may be required to raise interest rates ahead of financial market’s expectations, according to central bank policymaker Michael Saunders.

In his speech, The economic outlook, yesterday, Saunders predicted that: “Bank Rate will probably need to rise further over the forecast period than implied by the market path used in the May Inflation Report to keep inflation on target over time.

“I do not expect that policy will have to become restrictive, and expect that any policy tightening is likely to be to a limited extent and at a gradual pace. But we probably would have to return to something like a neutral stance earlier than markets project.”

The BoE policymaker was the first of the current Monetary Policy Committee members to vote for a rate rise in 2018, and he noted that the central bank “does not necessarily have to keep rates on hold” until all Brexit uncertainties were resolved.

Financial markets have currently forecast that the BoE is more likely to cut rates than to increase them over the next 12 months, reflecting signs that trade conflict between the United States and China is impacting the global economy.

However, the outlook from Saunders opposed that set by BoE governor Mark Carney in his policy outlook. Last month, Carney highlighted that inflation was likely to overshoot the BoE’s target over the coming years.

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