BoE's McCafferty cautions he may quickly revert to hawkishness

One of the foremost ‘hawks’ at the Bank of England cautioned that his newfound ‘dovishness’ might be quickly undone if the external factors weighing down on inflation lifted or if the pound remained too low for too long, threatening to filter through into the wage-setting process.

In a speech delivered on Wednesday, Monetary Policy Committee member Ian McCafferty said his fundamental view of the UK economy had not changed, although his expectation for the timing of inflation developments had been pushed back.

“It should be clear from my views on the economic outlook and monetary policy strategy that it is entirely possible that the reversion of my vote of no change to Bank Rate might be relatively short-lived,” the rate-setter said.

The factors which led him to vote for no change to Bank Rate at the MPC’s last policy meeting were concerns surrounding a number of emerging market economies, abroad, and “disappointingly weak” growth in nominal wages and other domestic prices at home.

"I still anticipate having to return to a vote to tighten monetary policy at some stage, although I cannot offer a firm date as to when that might occur – the uncertainty surrounding the evolution of the economy over the coming months is particularly acute at the moment,” he said.

“At present, judging to what extent moves in the exchange rate will prove persistent is more difficult than normal, given the timing of the referendum on Europe. But once this uncertainty lifts, any persistent weakness in the exchange rate would also need to be taken into account in judging the appropriate stance of policy, particularly to the extent that its impact on headline inflation then fed into the outlook for wage setting.”

As of 15:08 BST the pound was unchanged at 1.4398 versus the US dollar.