Bank Of England Policymaker Calls For Interest Rate Rise

[Darkman]

If only....

Bank hawk Martin Weale calls for interest rate rise

Bank of England policymaker Martin Weale today said there was a "compelling case" for hiking interest rates unless the UK shows clear signs of sliding into a double-dip recession.

Weale joined fellow hawk Andrew Sentance in pressing for dearer money this month, after inflation shot to 3.7% in December, nearly double the Bank's 2% target - but the vote took place before shock figures showing the economy shrank by 0.5% in the final quarter of 2010.

He wrote in The Guardian that the output figure was "alarming, but not surprising", following the pattern of previous recoveries, and said there "remains a risk that inflationary expectations become ingrained as a result of continued high inflation, whatever its cause".

http://www.thisislondon.co.uk/standard-business/article-23918870-bank-hawk-calls-for-rate-rise.do

And interesting comments below!

I just wonder when economists are going to understand that interest rate rises cause inflation they dont control it.

Its not rocket science! Money in this day and age is simply another commodity and when its cost rises inflation goes up!

- Tel:, Chelmsford:, 31/01/2011 13:38

[moonriver]

from Bloomberg

http://www.bloomberg.com/news/2011-01-31/u-k-gilts-decline-as-weale-says-u-k-rates-must-rise-to-curb-inflation.html

Gilts Fall as Weale Says U.K. Interest Rates Must Rise to Curb Inflation

U.K. government bonds fell after Bank of England policy maker Martin Weale said the central bank should raise interest rates to prevent inflation from becoming entrenched, hurting demand for fixed-income assets.

The pound weakened against the euro and gained versus the dollar. There is a “powerful case” for a “modest rise” in interest rates in the U.K., Weale wrote in an article published in the Guardian newspaper today. Short-sterling futures declined as traders increased bets interest rates will rise this year. Separate reports showed new jobs are being created at the fastest pace since at least December 2009, and the number of Britons who expect house prices to increase this year fell in the last three months.

“The market is clearly nervous that an increasing number of policy makers at the BOE are of the opinion that current low interest rate levels are no longer applicable,” Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Inflation is going to continue to rise so there is a credibility issue for the BOE. We think it will be forced to hike by the summer.”

The yield on the 10-year gilt rose two basis points to 3.67 percent as of 12:24 p.m. in London. The 4.75 percent security due March 2020 fell 0.14, or 1.4 pounds per 1,000-pound ($1,597) face amount, to 108.305. Two-year yields increased four basis points to 1.30 percent.

Short Sterling

Inflation in the U.K. has exceeded the central bank’s 2 percent limit for more than a year, quickening to an eight-month high of 3.7 percent in December, as fuel and food prices climbed. Bank of England Governor Mervyn King last week said the spurt in inflation would be temporary as government spending cuts and slowing economic growth help to temper price pressures.

The U.K. 10-year breakeven rate, a market gauge of inflation expectations derived from the yield gap between nominal and index-linked bonds, was little changed at 3.20 percent, within half a basis point of a more than two-week high reached on Jan. 28, according to data compiled by Bloomberg.

The U.K.’s central bank will be forced to raise its 0.5 percent benchmark rate by 25 basis points in August and again by the same margin in November, said Stamenkovic.

Short-sterling futures fell, pushing the implied yield on the December 2011 contract up four basis points to 1.50 percent.

The pound weakened 0.3 percent to 86.12 pence per euro and gained 0.1 percent to $1.5882. Sterling climbed 0.3 percent to 130.57 yen.

‘Short-Term Gains’

Gains in the pound will be “short-term” and the currency will “continue to be vulnerable to growth shocks,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “Rate hikes in the U.K. have already been priced in and the market realizes it will be difficult for the recovery in the pound to continue given the weakness of the economy.”

The Reed Job index climbed to 113 from 104 in December, the London-based company said today. That is the highest since the index began in December 2009, and follows a 7 point drop last month.

Even so, about 24 percent of 28,401 U.K. consumers surveyed this month said prices will be higher in a year, Rightmove Plc, the operator of Britain’s biggest property website, said in a report released in London today. That’s down from 27 percent in October and 53 percent a year earlier.

[Pent Up]

I wondered why the pound was back up a $1.60 all of a sudden.

I think if there is another unexpected surge in inflation in January we could see a token rise despite the horrific GDP figure.

[The Masked Tulip]

I wondered why the pound was back up a $1.60 all of a sudden.

I think if there is another unexpected surge in inflation in January we could see a token rise despite the horrific GDP figure.

King forced to resign as a token gesture by Coalition to refocus blame on Labour and King. Probably a retirement due to personal reasons.

Actually, if I could get a bet on King retiring for personal reasons in 2011 I think I would put a tenner on it.

[HPC001]

I wondered why the pound was back up a $1.60 all of a sudden.

I think if there is another unexpected surge in inflation in January we could see a token rise despite the horrific GDP figure.

Floating exchange rates make currencies vulnerable to short-selling speculators. See the Asian currency crisis of 1997 for an example.

[Democorruptcy]

King forced to resign as a token gesture by Coalition to refocus blame on Labour and King. Probably a retirement due to personal reasons.

Actually, if I could get a bet on King retiring for personal reasons in 2011 I think I would put a tenner on it.

His £198k pension was fully paid up in 2008 and the work he has done being vigilant about credit and asset bubbles in the UK has won him a new job:

Bank of England Governor Mervyn King was elected first vice chair of the new European Systemic Risk Board (ESRB) that came into force on Thursday.

The ESRB will monitor potential credit and asset bubbles across the 27-country bloc

http://uk.finance.yahoo.com/news/Bank-King-vice-chair-new-EU-reuters_molt-2431599609.html?x=0

[Patfig]

His £198k pension was fully paid up in 2008 and the work he has done being vigilant about credit and asset bubbles in the UK has won him a new job:

Monitoring them is one thing, doing something about them is another

[fellow]

Weale joined fellow hawk Andrew Sentance in pressing for dearer money this month

We just need three others to do the same thing.

[Patfig]

"Inflation in the U.K. has exceeded the central bank’s 2 percent limit for more than a year"

I thought 2 percent limit is higher for more than 2 years, and 3 percent limit is higher for more than 1 year.

They just need to up the limit, no problemo

[Democorruptcy]

This is just a bit of baton passing. Weale has drawn the short straw.

Andrew Sentance is stepping down from the MPC soon, so they need someone else to play the good cop who talks about interest rate rises.

[Patfig]

This is just a bit of baton passing. Weale has drawn the short straw.

Andrew Sentance is stepping down from the MPC soon, so they need someone else to play the good cop who talks about interest rate rises.

Inside info?

[singlemalt]

How effective would a UK rate rise be? The way I see it lots of the inflationary pressures are external. e.g I'm expecting another 1p on the cost of petrol by the end of the week due to the unrest in Egypt.

Maybe the new norm for the UK is going to be higher inflation. It is in the developing world why not here?

[thecrashingisles]

Inside info?

Public info:

http://www.bankofengland.co.uk/monetarypolicy/members.htm

Having said that, is there anything to stop Osborne reappointing him?

Edited January 31, 2011 by thecrashingisles

[gingertips]

This is just a bit of baton passing. Weale has drawn the short straw.

Andrew Sentance is stepping down from the MPC soon, so they need someone else to play the good cop who talks about interest rate rises.

isnt it someone the govt appoints?

[rantnrave]

How effective would a UK rate rise be? The way I see it lots of the inflationary pressures are external. e.g I'm expecting another 1p on the cost of petrol by the end of the week due to the unrest in Egypt.

Maybe the new norm for the UK is going to be higher inflation. It is in the developing world why not here?

Oil has just hit $100 a barrel on the back of the Suez Canal possibly being closed in Egypt.

From what I can see, economic policy in this country has now shifted from controlling inflation, through bringing us out of the recession to protecting our AAA credit rating at all cost.

[Patfig]

Oil has just hit $100 a barrel on the back of the Suez Canal possibly being closed in Egypt.

From what I can see, economic policy in this country has now shifted from controlling inflation, through bringing us out of the recession to protecting our AAA credit rating at all cost.

its all planned

[Democorruptcy]

isnt it someone the govt appoints?

This is just a bit of baton passing. Weale has drawn the short straw.

Andrew Sentance is stepping down from the MPC soon, so they need someone else to play the good cop who talks about interest rate rises.

If you mean the government decides which MPC member is the good cop pretending to want interest rate rises, you are probably correct.