Bank of England policymakers weigh up inflation and recession risks

LONDON (Reuters) – The Bank of England is expected to announce on May 5 that it is raising interest rates for a fourth meeting in a row and investors are mostly focused on its signals about further increases in borrowing costs after that.

Last month, the BoE softened its language on the need for more policy tightening.

But financial markets still expect the BoE to raise interest rates to around 2.25% by the end of this year, three times their current level. Most economists expect fewer hikes.

Following is a summary of MPC members’ recent comments:

ANDREW BAILEY, GOVERNOR

April 21: “We are now walking a very tight line between tackling inflation and the output effects of the real income shock, and the risk that that could create a recession and pushes too far down in terms of inflation.”

BEN BROADBENT, DEPUTY GOVERNOR

March 30: “As a big net importer of manufactures and commodities, it’s doubtful that the UK has ever experienced an external hit to real national income on this scale.”

“From the narrow perspective of monetary policy it will result in the near term in the difficult combination of even higher inflation but weaker domestic demand and output growth.”

JON CUNLIFFE, DEPUTY GOVERNOR

April 4: “I do not think we are yet seeing a psychology of persistently higher inflation emerge.”

“I am not at present convinced that we will inevitably have to lean heavily and constantly against an embedding of an inflationary psychology.”

HUW PILL, CHIEF ECONOMIST

Feb. 24: The BoE will seek to bring fast-rising inflation down in a “measured way” and one “that doesn’t disturb the rest of the economy”, Pill said in a local newspaper interview.

Feb 9: “Restricting ourselves to a 25 basis point (rate rise) now – albeit with the prospect of more to come in the coming months – is an investment in containing market expectations of aggressive ‘activism’ that I saw as worth making. That is what I would label a ‘steady-handed’ approach.”

CATHERINE MANN, EXTERNAL MPC MEMBER

April 21: “The domestic inflation ratchet … has been my central concern.”

“We want to avoid inflation getting out of control. And it may mean that interest rates go up a little bit.”

DAVE RAMSDEN, DEPUTY GOVERNOR

Feb. 22: “Some further modest tightening in monetary policy is likely to be appropriate in the coming months.”

“New shocks can arise …. (This) makes it particularly difficult to make predictions about where monetary policy might be headed in the medium term.”

SILVANA TENREYRO, EXTERNAL MPC MEMBER

March 2: “When you are talking about spirals, you are talking about explosive dynamics which we haven’t seen yet. If anything, we are just starting the first round, so how can you talk about second round (effects).”

MICHAEL SAUNDERS, EXTERNAL MPC MEMBER

March 1: Saunders said there was “significant excess demand” in the economy and “inflation expectations are not as well anchored as I would like”.

“All else equal, prompt tightening now could, in my view, help limit the total scale of tightening that will be needed to return inflation to target.”

JONATHAN HASKEL, EXTERNAL MPC MEMBER

Feb. 23: Asked why he voted to raise interest rates by 50 bps in February, Haskel said: “I have to stress it’s a very uncertain situation and it’s a very, very finely balanced decision.”

Haskel said he was “nervous” about a temporary blip in inflation becoming embedded in expectations.

(Compiled by Andy Bruce and William Schomberg; Editing by David Milliken, William Maclean)