The Bank of England should get on with raising interest rates this month to avoid having to lift them aggressively later, according to The Times shadow monetary policy committee.
For the second consecutive month, six of the nine members called for an immediate move and three voted for policy to be left unchanged.
The shadow MPC’s decision comes one month after two policymakers at the Bank of England broke ranks and voted for a rate increase from 0.5 per cent to 0.75 per cent. It was the first time in three years that the official Monetary Policy Committee had not been unanimous. The Bank’s MPC meets today and will announce its decision on rates at noon tomorrow.
Those on the shadow committee who voted for an increase argued that moving earlier would enable rates to rise more slowly, giving households and businesses time to adjust to the burden of higher borrowing costs. “A hike now would increase the likelihood that tightening can be fairly gradual, whereas later tightening would probably have to be much sharper,” Michael Saunders, the UK economist at Citigroup, said.
His concerns were echoed by Rupert Pennant-Rea, a former deputy governor of the Bank and the chairman of Royal London Group — who said that one of the reasons to start moving now was “to moderate the pace of rises” — and Sir John Gieve, another former deputy Bank governor.
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All three voted for a quarter- point increase. They were joined by Sir Steve Robson, a former second permanent secretary to the Treasury, and Bronwyn Curtis, a former head of global research at HSBC.
Andrew Sentance, a senior economic adviser to PwC and a former member of the MPC, reiterated his call for an immediate half-point rise. “The longer this step is delayed, the greater the risk of a big and unwanted adjustment in the future,” he said.
Sushil Wadhwani, the chief executive of Wadhwani Asset Management, stuck with his vote for rates to be left unchanged for a second month, raising concerns about the weakness of wage growth. Charles Goodhart, another former MPC member, asked: “What do we lose by waiting for trends to become clearer?” Geoff Dicks, a former member of the Office for Budget Responsibility, who called for rates to be held, said: “When the first hike comes, the case for it has to be watertight.”