Opinion split on interest rate rise at Bank of England

Bank of England rate setters have sent mixed signals over whether to hike interest rates next month, pointing to the prospect of a split vote.

Michael Saunders, a member of the Bank's nine-member Monetary Policy Committee, brushed aside recent weak economic data, saying that the significance of the slowdown is "questionable".

He added: "Economic activity in March, and especially retail sales, was hit by unusually heavy snow.

"Previous experience suggests that such snow effects typically reverse in the next month or two."

This, Mr Saunders added, means that the Bank's "foot no longer needs to be so firmly on the accelerator".

"Any further tightening is likely to be at a gradual pace and to a limited extent. A key point is that 'gradual' need not mean 'glacial'," he said.

Mr Saunders was one of two members of the MPC to vote for a hike in rates in March, from 0.5% to 0.75%, in order to curb growing inflation triggered by the collapse in the Brexit hit pound.

But inflation fell back to 2.5% from 2.7% in March, a one year low, easing pressure on the Bank to act.

Mr Saunders' comments come in stark contrast to Bank governor Mark Carney, who cautioned markets on Thursday that a rate rise in May is not a certainty.

Currency traders, who had send the pound soaring in the belief that a May hike was a certainty, were caught on the back foot.

The pound tumbled following Mr Carney's comments, falling from 1.42 US dollars to 1.40.

Connor Campbell, financial analyst at SpreadEx, said: "There was a slight improvement from sterling as Friday went on, thanks to a hawkish rebuke to Carney's Thursday dovishness from MPC member Michael Saunders."

"However, the pound-boosting potential of these comments was tempered by the fact that a) this wasn't some dove-to-hawk switch given Saunders' stance last month, and b) he doesn't feel that 'the exact timing of rate changes must be totally predictable or signalled in advance'."

The Bank of England will reveal on May 10 whether or not the MPC has decided to raise rates.

- PA

 

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