Bank of England's Martin Weale: Interest rate hike remains "finely balanced"

Jessica Morris
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The Bank of England has held interest rates at the record low 0.5 per cent for six years (Source: Getty)

The eventual interest rate hike remains "a finely balanced tug of war" and "pulls in both directions have intensified", a member of the Bank of England's rate-setting committee said in a speech made today.

Weale said the bank must weigh the fact rising wages without a corresponding pick-up in productivity will strengthen the case for a rate hike, with falling oil prices which have temporarily eased the urgency of this.

"If wage growth continues to accelerate over the next few months, especially in the absence of a pick-up in productivity, then for me it strengthens the case for a rise in Bank Rate," Martin Weale, monetary policy committee member, said.

"The fall in oil prices has certainly provided some unexpected breathing space." he said. "It is, however, at present no more than that."

He said the effect from falling oil prices, which prompted him and fellow MPC member Ian McCafferty to drop their push for a rate hike in January, will begin to drop out in less than a year.

"It is likely that inflation will fall below zero at some point in the next six months' this is not something to which the Monetary Policy Committee could or indeed should respond to," Weale said.

"The effect from oil will begin to drop out in less than a year and 'the rate of inflation will gradually recover towards our target."

The price of oil was about $115 per barrel in June, but it fell to just $45 per barrel at the start of this year. It's since hovered around $60 per barrel, with some saying it was bottoming out, but recent losses stalled this.

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