Interest rates will rise gradually over the next two years, Mark Carney told MPs yesterday, playing down the chance of another rate cut.
One member of the monetary policy committee (MPC) is tempted to vote for a rate cut, according to the minutes of its last meeting. However, Bank of England governor Carney refused to name them, leaving the City guessing as to the identity of the secret dove.
The other three members of the committee speaking to MPs also denied it was them. David Miles, Martin Weale and Ben Broadbent all agree with the MPC’s main view that the next move in interest rates will be a hike.
That leaves Minouche Shafik, Kristin Forbes, Andy Haldane, Ian McCafferty and Sir Jon Cunliffe as the remaining “suspects”.
In monetary policy jargon a “hawk” is an economist who is concerned the economy will overheat and inflation will take off, and so leans towards higher interest rates.
A “dove” is an economist who is less worried about inflation and more concerned with supporting GDP growth through lower interest rates. McCafferty last year voted for a rate rise, which makes him the least likely to consider a rate cut now.
By contrast, in recent meetings Andy Haldane has recently said he is watching inflation “like a dove,” as he wants to make sure deflation does not set in.
Previously, the MPC had seen 0.5 per cent as the lowest practical interest rate, as any lower rates would harm banks too much by crushing profits.
“Because banks’ balance sheets are stronger now, we no longer have those concerns,” Carney told the Treasury Select Committee. “But everyone on the committee believes rates will end up higher rather than lower.”
HUNTING FOR THE DOVE AMONG THE HAWKS
Ex-IMF exec Shafik tries to shun the labels, calling herself an “owl”. A practical operator, she is thought to stick close to the governor on monetary policy decisions.
Chief economist Haldane is the most openly dovish member and the main suspect as a potential rate-cutter. Last year he said he is watching inflation “like a dove”.
SIR JON CUNLIFFE
Deputy governor Cunliffe is the hardest to read – he focuses on financial stability, not monetary policy. He has given no clues away, and so could be a surprise dove.
Forbes is a suspect, but she is looking less like a dove lately. Yesterday she compared low rates to Midas’ touch – initially it created riches, but in time will do more harm than good.