LONDON (Reuters) – British inflation pressures could pick up quickly and other factors could also mean an interest rate hike is needed “in the near future” but the Bank of England is right to keep rates on hold for now, a BoE policymaker said.
Kristin Forbes said in a speech on Tuesday that the risks from a return of inflation, asset price bubbles in the financial sector and levels of consumption and savings were “moderate and manageable” at the moment.
“All of these trends merit close attention,” she said. “Any could factor into a case to tighten monetary policy in the near future. But they do not currently appear to be generating a sufficient cost to merit a change in interest rates today.”
The BoE’s nine rate-setters all voted to keep rates at their record low of 0.5 per cent at their January and February meetings.
Two policymakers, Martin Weale and Ian McCafferty, had voted to raise rates in the last five monthly meetings of the Monetary Policy Committee of 2014, but changed their minds after oil prices pushed Britain’s inflation rate to near zero.
In her speech, Forbes said it might sound silly to ask if rates needed to go up with inflation touching 0.3 per cent in January.
However, the external factors which have pushed inflation down – such as the plunge on oil and food prices and the strengthening of sterling – would fade quickly, she said.
Forbes said there were risks that inflation could prove stronger or weaker than expected.
“The bottom line however, is that the current policy of near-zero interest rates does not yet appear to be generating incipient inflationary pressures that could not be addressed in a timely fashion as needed,” she said.