LONDON (Reuters) – The Bank of England’s next monetary policy move is likely to be an increase in interest rates because the factors that have pushed down inflation sharply are largely transitory, a policymaker at the bank said on Thursday.
“It seems to me that the most likely next move in monetary policy will be a gradual and limited increase in interest rates,” Deputy Governor Minouche Shafik said in a speech.
“The underlying picture is one in which domestic demand is expected to continue growing robustly, facilitating a pick-up in wage growth, which we are starting to see, and a return of inflation to target.”
The comments echoed the views of other top bank officials who have spoken recently, including Governor Mark Carney.
British consumer price inflation fell to 0.3 per cent in January, pushing back expectations for when the BoE might start to raise interest rates and prompting some discussion that a rate cut might be necessary.
In her speech, which mostly focused on the BoE’s relationship with financial markets, Shafik said the bank could raise rates more quickly than markets expect if spare capacity in the economy is run down sooner than anticipated, or cut them if low inflation threatens to become self-reinforcing.
She also said the bank would one day need to start selling off government bonds it bought as part of its drive to pump more stimulus into the British economy after the financial crisis.