BoE split evenly in August on whether basic conditions for rate hike met – Bailey

September 8, 2021

By David Milliken and William Schomberg

LONDON (Reuters) – Bank of England policymakers were split evenly last month between those who felt the minimum conditions for considering an interest rate hike had been met and those who thought the recovery was not strong enough, Governor Andrew Bailey said.

Bailey said he was among the officials who thought the minimum conditions had been reached, but they were not yet sufficient to justify a hike as Britain’s economy continued to recover from its nearly 10% pandemic crash in 2020.

At its August meeting, the BoE’s Monetary Policy Committee voted unanimously to keep its benchmark Bank Rate at an all-time low of 0.1%. Only one member, Michael Saunders, voted for a reduction in the size of its bond-buying programme.

But the BoE did set out on Aug. 5 how it could gradually tighten monetary policy and Bailey’s comments on Wednesday added to signs that it is preparing to reduce the massive stimulus it pumped into the economy last year.

“Let me condition this by the fact that it was an unusual meeting because there were only eight members of the committee – so it actually was four-all,” Bailey told the Treasury Committee in the lower house of parliament.

Sterling rallied after his comments.

Last year when Britain’s economy was reeling, the BoE said it did not intend to close the stimulus taps “at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2% inflation target sustainably”.

Deputy Governors Ben Broadbent and Dave Ramsden said on Wednesday they also now thought the minimum conditions for a rate hike had been met. Broadbent said the BoE still needed to focus on the medium term.

Another member of the Monetary Policy Committee, Silvana Tenreyro, said she felt the conditions had not been met and that the BoE should not put too much weight on short-term supply-chain bottlenecks.

Bailey said Britain’s economic bounce-back from its COVID lockdowns was showing some signs of a slowdown: “At the moment, we’re seeing some levelling off of the recovery. The short-term indicators are suggesting that.”

He stuck to his view that a recent jump in inflation – which the BoE says will hit 4%, or double its target – would not prove to be persistent and bottlenecks in supply chains which have helped to drive up prices were likely to be resolved.

Bailey said the expiry of the government’s job-subsidies programme at the end of this month would probably help employers to find new workers, but he did express concern about potential inflationary pressures from a lack of applicants.

Ramsden said he put more weight on an inflationary scenario than a deflationary one, echoing comments he made in a speech in July that suggested he might be moving towards voting to scale back of the BoE’s stimulus.

(Additional reporting by Andy Bruce, Alistair Smout and William James; Writing by William Schomberg; Editing by Gareth Jones)

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