Senior Bank of England officials lined up yesterday to suggest that a rise in interest rates would come sooner than markets expected.
Fast economic growth and sharp drops in unemployment have boosted the chances of a hike in the coming months, despite moderate inflation.
The Bank’s monetary policy committee (MPC) described the low odds many forecasters had placed on a rate hike this year as “somewhat surprising” in the minutes to its latest meeting, published yesterday.
During a speech later in the day, the Bank’s chief economist, Andy Hal-dane, employed a sporting metaphor to outline the turn towards tightening: “An earlier front foot movement… this is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk.”
Haldane concluded that the current economic climate was “slightly favouring the front foot”.
His MPC colleague Martin Weale also hinted that the first post-crash rate hike would come this year. “The policy of raising the Bank rate gradually does imply that the first rise needs to come sooner than would otherwise be the case,” Weale said.
Weale also said that he expected more rapid wage growth, of 2.5 to three per cent in 2014, repeating his suggestion that the economy had less slack than the Bank suspects.
The comments follow governor Mark Carney’s intervention at the end of last week, in which he said a rate hike could come sooner than thought.
“Indications of a rapid tightening in labour market conditions could be a deciding factor over the rest of this year, with some of the more hawkish members of the MPC beginning to press for rate hikes relatively quickly,” said Philip Shaw of Investec.
There was no dissent against the decision to keep rates at 0.5 per cent for now, however. All nine members voted for stasis for the 12th month – the longest period of consensus in the Bank’s history.
“Since [Carney arrived] unanimity and harmony have reigned. At a time where uncertainty over the UK economy is so high, the extent of agreement on the committee over the past year has been little short of remarkable,” said Fathom Consulting in a note.