Key Bank of England policymaker ‘not ready’ for interest rate rise

The Bank of England should resist increasing interest rates while the direction of the economy remains unclear, according to one of the central bank’s senior policymakers, an announcement that reduces the chances of a rate hike this year.

Ben Broadbent, a close ally of BoE governor Mark Carney, said he was not ready to raise interest rates while the the bank’s monetary policy committee (MPC) found it “very difficult” to judge whether there had been a significant improvement. “In my opinion, it is a bit tricky at the moment to make a decision [to raise rates]. I am not ready to do it yet,” the deputy governor said.

His comments contrasted with those made by the head of the US central bank, Janet Yellen, who said the US economy was strong enough for rates to continue increasing, though to a historically low natural rate, thought to be between 2% and 3%.

Yellen’s remarks to Congress sent global stock markets soaring, with the Dow Jones Industrial index reaching a fresh all-time high of 21,535 while the UK’s FTSE 100 index jumped 83 points to 7,416. The German Dax and French CAC leapt by more than 1.5%.

Joshua Mahony, a market analyst at spread betting firm IG, said Yellen’s comments were seen as dampening expectations of a steep rise of US rates. “Stocks are back in the swing of things, with the Dow hitting new record highs in the wake of a dovish testimony from Janet Yellen in Washington,” he said, in ab interview with the Aberdeen Press and Journal.

“To some extent Yellen provided a relatively hawkish statement given her declaration that rate hikes should continue despite falling inflation. However, in speculating that it would not take many more hikes for the Fed funds rate to be neutral, Yellen has essentially signalled that there will be a finite amount of rate rises around the corner. Markets are now looking for a December rate hike at the earliest, and crucially just one rate rise in 2018.”

The US and UK have experienced strong jobs growth, but relatively weak increases in average wage growth. The Federal Reserve has pushed ahead with four increases since 2015 that have raised the base rate by 1%, while the UK base rate remains at 0.25%. British policymakers came close last month to raising interest rates for the first time in a decade after three members of the MPC voted for an increase.

Investors have keenly awaited Broadbent’s stance on rates, after chief economist Andy Haldane, who voted to keep rates on hold, later hinted that he might switch to the hawkish camp later in the year. Several analysts have said the views of Broadbent – deputy governor for monetary policy – would be key to assessing the chances of a first BoE rate hike in a decade.

Broadbent said economic growth had been “OK” during the last six to 12 months and pointed to rising employment and inflation. “There is reason to see the [monetary policy] committee moving in that direction [towards higher interest rates] – but there are still a lot of imponderables,” he said.

Broadbent said many companies would remain nervous about their prospects while they were “one or two years down the road” from knowing what Brexit means. On Tuesday, he said in a speech that a reduction in trade between Britain and the EU would harm both economies and causes prices to rise.

New MPC member Silvana Tenreyro, who replaced rate-increase advocate Kristin Forbes this month, has yet to speak on policy.