Bank of England’s Vlieghe Dismisses Imminent Interest Rate Rises

The longer-term prospects for the British pound rest with the all-important timing of the first interest rate hike by the Bank of England since 2007. Which is why what Gertjan Vlieghe has said is so important.

The British pound srely needs a game-changer as it languishes at multi-month lows against the US dollar and the Euro. Those hoping that hints of an imminent interest rate rise at the Bank of England would be that news will be disappointed.

Speaking recently at the London School of Economics, Monetary Policy Committee Member Gertjan Vlieghe said current economic conditions do not warrant an interest rate rise.

“Be prepared for the possibility that real interest rates will remain well below their historical average for a very long time, even with economic growth that is close to or only somewhat below its historical average,” says Vlieghe.

Vlieghe spoke on what he termed the “3 Ds” - debt, demographics and distribution of income. His analysis of these factors as relates to the UK economy are not at the adequate levels to warrant raising interest rate rises.

“I will argue that changes in the 3 Ds are interacting powerfully to create an environment where a given level of growth might be consistent with substantially lower interest rates than in the past,” says Vlieghe.

The economist also discussed the decline in oil prices which have fallen sharply due to a combination of rising supply and easing global demand.

Notably, Vlieghe said he will not be joining Ian McCafferty in voting for an interest rate rise in upcoming meetings:

“The risk of a further slowing in emerging economy growth, and risk of spill-overs to advanced economy growth, is one of the key downside risks the MPC highlighted in its November Inflation Report.

“Although I share the MPC’s November forecast of stabilising growth and gently rising inflation pressures to bring inflation back to its 2% target in around two years, we have been disappointed on both the growth and inflation front since November.

“I need to see further evidence that growth is indeed stabilising, and that a broad range of indicators relating to inflation, inflation expectations and pay growth are generally on an upward trajectory from their current low levels before being confident  enough in the outlook to justify a rise in Bank Rate.”