A key figure of the Bank of England’s Monetary Policy Committee has this week revealed just how close we may be to a Base Rate increase.

Speaking to Bloomberg, MPC member David Miles said that he felt there was a “reasonable argument” for starting the journey toward an increase in rates now.

At the meeting last month, only one member of the MPC, Ian McCafferty, voted to increase base rate, however the decision was, as Miles explains, not taken lightly.

“Sterling had gone up a bit, oil prices had fallen a bit, there were somewhat ambiguous signals from the labour market, but on balance it was a set of economic news that probably reduced at least the near-term inflation profile by a non-trivial amount” Miles said.

“For me that was what made the decision ultimately one to keep policy on hold. Ian McCafferty came out on one side of that and I was on the other side, but it wasn’t a compelling clear-cut case one way or the other for me.”

It may be that other members of the committee felt that the case for an immediate increase was not compelling, however that arguments in favour were perfectly reasonable, as Taj Kang explains.

“It suggests that the MPC could focus on trends in unemployment numbers in the short term, which are both largely unchanged through the second quarter” said Kang, a Business Development Director at Contractor Mortgages Made Easy.

“From Governor Mark Carney’s comments in the Bank of England’s inflation report published last week, it was suggested that the immediate pressure on the MPC to increase rates had weakened, but it appears not.”

It was to be David Miles’ last meeting as a member of the Monetary Policy Committee, as the Professor of Financial Economics at Imperial College Business School in London will leave the committee on August 31st.

Miles, who intends to focus more on his academic work at Imperial College, also warned that delaying a Base Rate increase could lead to a sharper incline.

“The longer you leave it, the slightly more steep that trajectory becomes. Supposing you thought that where you might want to get to, 2-and-a-half to three years down the road; is 2.5 to 3 percent on interest rates, so you need 200 to 250 basis points of increases in rates, and you wanted to grow gradually. That’s quite consistent with not immediately increasing interest rates, but at the same time you wouldn’t expect to be waiting around many, many months and well into next year before you started this journey.”

Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy

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