Meeting minutes could show Weale isn’t the only one to call for rate hikes

17th June 2014

BoE Meeting Minutes – 18/06/14

All it takes is a few quarters of strong nominal growth rates for the hawks to start crawling out of the woodwork. The first was Martin Weale, a member of the Monetary Policy Committee at the Bank of England, making an outright call for rates to rise ‘sooner rather than later’.

The next hawk to emerge took everyone by surprise. The Governor, Mark Carney, speaking at the Mansion House address, warned that the first interest rate rise could happen ‘sooner than the markets expect’. Charlie Bean was the next Bank member to back the calls over the weekend.

Carney’s call to bring forward expectations of an interest rate hike is not based on a change in outlook on the degree of economic spare capacity or even bounding growth. Carney is only advocating sooner rate hikes so that he can guarantee slower and incremental hikes once they do occur. The Bank of England is unclear as to the impact rate increases will have on the economy, as they struggle to grasp why productivity still hasn’t recovered from the financial crisis.

The Bank is increasingly concerned over the economy’s reliance on consumption and housing, all backed by debt. The high proportion of foreign borrowing coupled with an appreciating currency, sharply raises the spectre of the risks to the economy. The Bank needs to begin slowly raising rates to wean the economy off its debt dependency, and the sooner they start, the more carefully they can tread – avoiding tighter policy pulling the rug from beneath the recovery.

Addressing the most prominent bankers in the City of London, Carney’s comments may have been a pre-warning to the markets for a turning of the tide at the Bank and the first vote for interest rate hikes. All attention will be on the interest rate vote from this week’s meeting minutes changing to anything from unanimous.

At least one member is likely to call for a rate hike at either the June or July meeting and, given his outspoken comments, the smart money is on Martin Weale. Considering accelerating UK growth, rising inflation in the near term and the UK’s rising debt level, Weale may not be the only one.