McCafferty pushes for rate hike, but Vlieghe resists
Another day, another division among the Bank of England’s team of interest rate setters.
Ian McCafferty and Gertjan Vlieghe are the latest members of the Monetary Policy Committee to give opposing views on whether or not it’s time to raise UK rates, currently at an all-time low of 0.25%.
McCafferty, who was among three MPC members to vote for a rate rise at the June meeting, told the Daily Post in North Wales that it would be a “prudent” move to increase borrowing costs.
“We made the last interest rate cut from 0.5% to 0.25% last August after the EU referendum decision when it was felt that a stimulus was needed. Since then the economy has not slowed to the extent we feared it would last summer and meanwhile inflation has been high.
“I feel on the balance of monetary policy that there is a need for change. I think this would be justified and would be the prudent thing to do at this stage.”
Vlieghe on the other hand says it would be a mistake to raise interest rates now.
He’s one of the most dovish members of the MPC, and insists that it would be wrong hike borrowing costs when consumer spending is slowing.
“This is an environment where a premature hike would be a bigger mistake than one that turns out to be slightly late.
“I think the consumption slowdown is here, it’s not over. I don’t think there’s going to be a sufficient offset from investment and net exports to compensate for that.”
“What I want to emphasise is that I don’t think there is no risk from keeping rates on hold. I just think that we are still in an environment where one of those risks is bigger than the other one.”
It all shows that the next BoE interest rate meeting, in August, could be a real clash of wills.
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The agenda: Bank of England to tackle credit weakness
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Consumer credit fears have been building in the UK for months. Squeezed families have been forced deeper into debt, and some borrowers have been loosening their lending criteria to keep the loans flowing.
And today, the Bank of England is expected to outline how it will rein in lenders who have been doling out credit to consumers too quickly.
This follows last week’s meeting of the Bank’s Financial Policy Committee, which flagged up concerns that the credit market – particularly to buy cars – was a concern.
Reuters has a good take, saying:
The BoE said last week that a targeted review by its banking supervisory arm, the Prudential Regulation Authority (PRA), had found weaknesses in some aspects of underwriting credit and a reduction in the resilience of banks.
On Tuesday, the PRA will make a statement on its first set of specific actions or “expectations” from the banks it regulates regarding credit to consumers. It will look at a wide range of credit, including the financing of car purchases – though banks now account for a much smaller portion of this than in the past.
“Effective governance at firms should ensure that risks are priced and managed appropriately and benign conditions do not lead to complacency by lenders,” the BoE said last week in its twice-yearly Financial Stability Report.
The statement is expected around 9.30am UK time.
At the same time, we’ll also get a new healthcheck on the UK building sector. Markit’s Construction PMI is expected to drop to 55 points, to 56 in May, which would show slowing growth.
The report could move the markets, says David Madden of CMC Markets:
Homebuilders like Persimmon, Redrow, Bovis Homes and Taylor Wimpey will also be sensitive to the UK construction data. The house builders have benefitted from the Bank of England’s loose monetary policy, and should that policy change, we could see a reversal of fortunes for the sector.
European stock markets are expected to dip this morning; not helped by the news that North Korea has just claimed to have tested an intercontinental ballistic missile.
Janis Mackey Frayer
(@janisfrayer)In a ‘special announcement’ on KCNA, North Korea claims its first successful test of an ICBM. @NBCNews pic.twitter.com/HtC6VLdUP3
And it’s Independence Day in America, so Wall Street will be closed.
Here’s the agenda:
- 9.30am: Bank of England publishes Financial Policy Committee meeting minutes
- 9.30am: UK construction PMI released
- 10am: Eurozone producer prices report for May
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