The Bank of England may be already done with its bid to stamp out sticky UK inflation after a cooling in the economy and jobs market, according to Michael Saunders, a former hawkish rate-setter.
(Bloomberg) — The Bank of England may be already done with its bid to stamp out sticky UK inflation after a cooling in the economy and jobs market, according to Michael Saunders, a former hawkish rate-setter.
Saunders, who served on the BOE’s Monetary Policy Committee between 2016 and 2022, said that “the emerging weakness in the economy” plus “signs that the labor market is beginning to loosen” will allow the BOE to shift strategy at this month’s meeting.
“I think they’re pretty much done,” Saunders told Bloomberg’s UK Politics podcast. “It looks to me about 50-50 as to whether they will hike again at the September meeting and if they do hike, it would be only 25 basis points.”
Markets currently expect a further two hikes from the BOE in the coming months, lifting its key lending rate to 5.75%. However, chief economist Huw Pill threw more rate rises into question by calling for a “Table Mountain” path for policy where rates are left flat at high levels for a prolonged period rather than rise further.
Saunders was one of the most hawkish voices when he was on the MPC as inflation started to take off in the UK. However, he now advocates a more cautious approach amid signs of a weakening economy.
“We’ve had during the course of this year, substantial evidence of second round effects through wages and services inflation but also there’s a growing drag on the economy from the substantial tightening of monetary policy,” Saunders said.
The economic and labor market weakness “should be enough to allow the MPC to shift from a strategy of raising rates at every meeting to then just keeping them high for an extended period,” he added.
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