Bank's new rate-setter Gieve adopts doveish tone before MPs

Sir John Gieve, the career civil servant who took over as Deputy Governor of the Bank of England last week, struck a doveish tone at his first public appearance yesterday. In testimony to a committee of MPs, he said there was no evidence rising fuel costs were driving up prices or wages as economic growth picked up.

He also played down the concerns over high household debt that had often prompted his predecessor, Sir Andrew Large, to vote for a rise in interest rates.

Asked by the Treasury Select Committee how the Bank should react to high oil prices, Sir John said: "So far the sharp rise over the last couple of years does not seem to have fed through into a longer-term rise in earnings or inflation expectations."

He said a jump in oil prices could even curb economic growth, which could open the door to a rate cut as a response. "I'm not sure you're right in saying that you need to maintain higher interest rates in the face of an oil price hike," he said. "An oil price hike has a number of effects and one of them is to depress output and growth."

He said he would monitor the issue, adding that the causes of the oil spike were very different from the factors behind the oil shock of the late 1970s.

Sir John also appeared to differ from his predecessor on the risk posed by the build-up of household debt after house prices and consumer spending surged in the first half of 2004.

"It is not likely that the level of secured borrowing poses a risk to monetary or financial stability over and above the risks posed by the current level of house prices," he said. "I doubt whether the increases in unsecured borrowing are sufficiently large to have great significance for monetary policy - although they raise some social concerns."

Sir Andrew called for higher rates on more occasions than any other member of the Monetary Policy Committee since it was formed nine years ago.

Paul Dales, the UK economist at Capital Economics, said: "Sir John may prove to be a more doveish member of the MPC than his predecessor. At the margin, this slightly increases the chances that interest rates will fall further this year."

Analysts are still divided about what the next move in interest rates will be.