Hike in Bank Rate might be prudent in second half, BoE's Haldane says

The Bank of England's chef economist signaled he too might soon shift his stance in favour of a hike in Bank Rate.

In remarks prepared for a speech the day before, Andrew Haldane said the resilience of economic growth meant that the risks of tightening too early had diminished.

On 15 June, two members of the Monetary Policy Committee, Ian McCafferty and Michael Saunders, unexpectedly joined their colleague Kristin Forbes in calling for an immediate increase in rates, with the MPC meeting minutes revealing that rate-setters' tolerance for above target inflation was being tested.

"Provided the data are still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year," Haldane said.

Indeed, if the MPC waited "too long" then the risk was that at some point Bank Rate would rise faster and by more down the line.

Nonetheless, Haldane conceded that some of the risks which kept him from turning more hawkish until recently were still present.

Inflation was on the rise, dampening household consumption, and the risk still existed that Brexit negotiations would go astray.

That, he said, could lead to a "discontinuous response by consumers and companies" or what he dubbed a 'Brexit break'.

"Mr Haldane’s hawkish shift surprised given the opposing tone struck by Mark Carney yesterday and is at odds with a slowing economy and the lack of any serious domestic inflationary pressure. We still think it highly unlikely that the Bank will tighten policy this year," said Martin Beck, lead UK economist at Oxford Economics.

"For now at least, we maintain the view that the Bank of England will hold off from raising interest rates in 2017 - but confidence in this call has taken a hit. The outlook for interest rates in 2018 is also murky given the cloudy economic and political outlook," added Dr. Howard Archer, chief economic adviser at EY ITEM Club.

As of 1314 BST, cable was 0.51% higher to 1.2694.