MPC member says fall in oil prices provided breathing space, but
little more, and that he could see himself voting for higher borrowing
costs in coming months
The prospect of another split at the Bank of England
over interest rates has emerged as one of its leading “hawks” says he
could see himself voting for higher borrowing costs over the coming
months.
Martin Weale, one of the four independent members of the Bank’s
nine-strong monetary policy committee, said that despite global worries
about low inflation the decision about whether to raise interest rates
was finely balanced.
Weale voted for a rate rise in the closing months of 2014 along with
fellow MPC member Ian McCafferty. But he changed his mind as a result of
the halving of oil prices, which has left inflation as measured by the
consumer prices index at 0.3%.
In speech in London on Wednesday, Weale said: “Compared with the
autumn, when I was voting for an increase in [the] Bank rate, the fall
in oil prices has certainly provided some unexpected breathing space. It
is, however, at present no more than that.”
He said there was a risk that low inflation would become entrenched,
identifying the recent rise in the value of sterling as the next factor
that could push the cost of living lower.
But Weale said there was also an upside threat to inflation from the labour market.
“The unemployment rate has been falling rapidly, and we have also
seen the employment rate reach a record high,” he said, adding that job
vacancies were back to pre-crisis levels.
Although growth in average earnings is running at around the 4% level
seen before the deep recession of 2008-09, he said that “pay is now
growing at its fastest rate since before the crisis”.
He added: “If wage growth continues to accelerate over the next few
months, especially in the absence of a pickup in productivity, then for
me it strengthens the case for a rise in [the] Bank rate. As always,
however, I will decide how to cast my vote in the light of economic
developments.”
