Bank rejects 'conspiracy theory' over rate speeches

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The Independent Online

Traders return to their screens this morning to react to comments by Stephen Nickell that showed he was in no hurry to raise rates.

Traders return to their screens this morning to react to comments by Stephen Nickell that showed he was in no hurry to raise rates.

Last week three other members of the Monetary Policy Committee - Rachel Lomax, Charlie Bean and Kate Barker - gave speeches or interviews and two more, Paul Tucker and Marian Bell, will do so this week, making six public statements from the nine-strong committee in just eight days.

The "hawkish" tone of most of last week's comments, combined with news of Mr Tucker's solo vote for a rate rise at this month's meeting, led analysts to believe the Bank was trying to co-ordinate a hawkish message to the markets.

Two weeks ago it published its quarterly inflation report showing inflation breaking through the 2 per cent level but with the balance of risks to the downside.

But a senior source at the Bank said: "We know people will find a conspiracy theory. But it isn't the case. This always happens just after an inflation report when MPC members are all eager to speak and they get bunched together."

Professor Nickell's comments, in an interview in last Saturday's Independent, are likely to help stem that speculation. One of the four external members, he said he believed there would be a danger in raising rates and then having to cut them if consumer spending turned out weaker. He said: "If consumption growth is seriously slowing down then putting rates up would not be a good idea."

The pound rose against the dollar and the euro after earlier comments from MPC members and news of Mr Tucker's vote ended a 10-month run of unanimity. Ms Barker said only concerns over consumption had prevented a rate rise, Ms Lomax mulled the need for pre-emptive action, and Mr Bean warned about the danger to the Bank's credibility of letting inflation rise too fast.

Economists at Capital Economics said in a briefing note: "The speeches contained some hawkish soundbites and posed the bigger question of whether the MPC is deliberately telling us that rates are going to rise. If there is any truth in the latest conspiracy theory, the MPC may already have decided that rates are going to rise before then and, what's more, told us as much."

George Buckley, UK economist at Deutsche Bank, said markets should infer that rates were "definitely" going up, but added: "Rather the Bank appears to be gearing up the market for the possibility that the tightening cycle is now over." But Alan Clarke, UK economist at BNP Paribas, said last week's speeches were more balanced than had been reported in the media.

The minutes of the MPC meeting revealed a three-way split between Mr Tucker, a group mulling the need for a rate rise and a third group happy to wait and see.

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