Gertjan Vlieghe, the Bank of England’s newest interest-rate setter, said the United Kingdom economy’s ability to withstand global headwinds is probably limited.
Advertisement
His comments came as September inflation figures showed year-on-year growth in the consumer prices index falling below zero to minus 0.1 per cent. This is the second time this year that the CPI has turned negative and equalling the lowest rate of inflation since March 1960.
“Businesses can spend less on moving goods and people across the world and more on paying down debt, investing in equipment, hiring staff, or offering pay rises”, said Michael Martins, economist at the Institute of Directors, a body with 35,000 members among the British business community.
Although Bank of England officials, led by Governor Mark Carney, have signaled they remain on course to increase rates in the first half of next year, market derivatives now price in a tightening of policy as late as end-2016 or even 2017.
Vlieghe said the Bank should “wait and see” before raising borrowing costs, prompting one lawmaker to brand him a dove for sounding so cautious about the outlook. “As lower food and energy prices start dropping out of the annual inflation rate, we should expect inflation to move back toward 2 percent next year”.
“It is one of the things that will prevent the United Kingdom economy from accelerating meaningfully from its current pace of growth”.
Mr. Vlieghe said signs of a sharper than expected slowdown in a few large developing economies means the U.K.is operating in an “adverse” global environment, and for that reason economic growth at home is unlikely to pick up from current levels.
The BoE said wages in the United Kingdom labour market were rising too slowly for inflation to return to the Bank’s 2% target.
Advertisement
Sterling tumbled to an eight-month low against the euro – at one point hitting €1.3347 – as investors bet the first rate hike since 2007 is a long way off. He later severed all links with the firm to avoid “any mistaken impression” of conflict of interest. He told MPs he was in line to receive a “couple of hundred thousand pounds” from the sale.
