BoE’s governor Mark Carney had said a rate rise would likely be necessary in the coming months © Bloomberg
The two newest members of the Bank of England’s Monetary Policy Committee have suggested they are not ready to vote for higher interest rates, casting some doubt over the widely held view that the central bank will raise rates next month.
Sir Dave Ramsden, the new deputy governor for markets and banking, put himself on the dovish side of the nine-member MPC on Tuesday, telling MPs on the Treasury select committee that he did not agree with the majority of committee members who said last month that a rate rise was likely to be necessary soon.
Silvana Tenreyro, an external MPC member, said she would need to see more evidence of the elimination of slack in the labour market before voting for a rate rise.
Two other external MPC members, Michael Saunders and Ian McCafferty, voted for a rate rise at the last meeting in September. Governor Mark Carney has said he was part of the unspecified “majority” of the nine-member committee that said a rate rise would likely be necessary in the coming months.
The precise views of the other committee members are unknown, although Andy Haldane, chief economist of the BoE, had expressed concerns about high inflation before the September meeting.
Office for National Statistics figures published on Tuesday showed inflation rose to 3 per cent in September — the highest level for half a decade.
Sir Dave told MPs that while the headline inflation rate was rising, underlying inflationary pressures were under control. He said he was not one of the “majority” of MPC members that had suggested at the September meeting that a rate rise would likely be necessary in coming months.
“I voted to maintain bank rate at a quarter of a per cent,” he said. “A majority saw a case for removing some monetary policy stimulus in coming months . . . I was not part of that majority”.
In a written statement submitted to MPs, Sir Dave set out his reasons for taking a relatively dovish view.
“Despite continued robust growth in employment there is no sign of second round effects onto wages from higher recent inflation,” he wrote.
Ms Tenreyro, who joined the MPC in July, took a more hawkish outlook than Sir Dave. But she also distanced herself from those MPC members who thought a rate rise was likely to be warranted over the coming months.
Ms Tenreyro said there was still slack in the labour market, which was keeping wage increases low and underlying inflation below the MPC’s 2 per cent target. But she added: “We are approaching a tipping point when we will need to reduce some of that stimulus.”
However, Ms Tenreyro did not give the impression that the tipping point was imminent, and while she said she would be “minded to vote for a rate rise in coming months”, she added that her vote was dependent on slack moving towards zero.
“A premature increase might be very contractionary, so a mistake there might be very costly,” she said.
Both Sir Dave and Ms Tenreyro were quizzed by MPs on their relevant experience for setting interest rates.
Ms Tenreyro, a professor at the London School of Economics, said her childhood in Argentina would help make sure the MPC avoided group think.
“I grew up in a developing country subject to many crises, long spells of high unemployment, high inflation rates, hyperinflation episodes,” she said. “I am very aware of how bad macro management can impinge on individuals and societies.”
Sir Dave, who was previously chief economic adviser to the Treasury, was asked to defend his work on a controversial report that had predicted the Brexit vote would immediately lead to a shallow recession.
Responding to suggestions that resilient economic growth and employment levels since the vote had discredited the Treasury, Mr Ramsden said that “clearly some things didn’t play out” as expected, but added that the report had successfully highlighted risks to the exchange rate, inflation, real wages and capital investment.