David Miles says strong pick-up in investment, fading housing market boom and low wage growth means sharp rate rise is unlikely
Bank of England governor Mark Carney dampened talk of a sharp interest rate rise on Wednesday. Photograph: Suzanne Plunkett/PA
The Bank of England will not be pushed into raising interest rates sharply because the outlook for inflation is subdued, a policymaker on the Bank's rate-setting commmittee has said.
Speaking to BBC Radio, David Miles said that investment spending in Britain had started to increase strongly and he expected that to continue, making for more than a consumer-led recovery.
Miles, regarded as a dove on the monetary policy committee (MPC), noted that inflation is now slightly below the Bank's 2% target.
"That's very good news because it means that we're not going to be pushed into raising interest sharply, because the inflation outlook remains pretty subdued."
The BoE on Wednesday dented expectations of an interest rate hike this year, slashing its forecast for wage growth and saying higher borrowing costs hinged largely on an improved outlook for pay.
Miles said Britons were probably getting pay settlements of around 2% on average, and that he expected wages to start outstripping the rate of inflation going into next year.
Official data on Wednesday showed British workers earned less between April and June than they did in the same period last year, even as the unemployment rate fell once again.
Miles, an external member of the MPC, said the spread between mortgage rates and the Bank's official interest rate would likely be higher than it was in the past – a legacy of the financial crisis.
As a result, Bank rates will probably run at a "new normal" in future – lower than they were before the financial crisis, he added.
He also noted that some of the forward-looking indicators of Britain's housing market were starting to cool.
A survey of chartered surveyors on Thursday showed rapid house price growth in Britain is starting to moderate, with momentum in London's property boom fading fast.
Miles declined to say how he voted in the MPC's August meeting. Minutes from the meeting will be published next Wednesday. (Reporting by Andy Bruce; Editing by Kim Coghill and Eric Meijer)
source
http://www.theguardian.com/business/2014/aug/14/low-inflation-cap-interest-rates-bank-england-mpc
