Bank of England's Saunders edges towards rate rise

[LONDON] Bank of England policymaker Michael Saunders said on Friday that he expected growth and inflation this year to be higher than the central bank forecast two months ago, and saw scope for rates to rise modestly while still boosting the economy.

Mr Saunders, in a speech to small businesses in London, said he did not want to commit to how he would vote at next month's Monetary Policy Committee meeting, as there was still plenty of data to come.

But he said that despite uncertainty about the exact terms on which Britain would leave the European Union in 2019, policymakers were not obliged to keep rates on hold until everything was clear.

"I judge that the current policy stance is clearly accommodative," he told members of the Federation of Small Businesses.

"While not prejudging what I or the MPC might decide on monetary policy - a modest rise in rates would still imply that considerable stimulus remains in place, helping to support output and jobs," he added.

The minutes of the BoE's last meeting in March showed that in addition to one policymaker - Kristin Forbes - backing an immediate rate rise, other unnamed MPC members were also considering doing so.

Mr Saunders said he "would not be surprised" if consumer price inflation reached three per cent later this year or in early 2018, and said economic growth could maintain a year-on-year rate of two per cent through this year and next.

The BoE's February forecasts showed growth slowing to 1.6 per cent in 2018 from two per cent this year, and for inflation to peak at less than three per cent.

"I want to stress that this prospective near-term inflation pickup does not imply that Brexit Britain will face persistently high inflation. Nor does it signal that the MPC has gone soft on our low inflation remit," Mr Saunders said.

"Over time, the appropriate monetary policy can and will ensure that inflation returns to the two per cent target," he added.

REUTERS