UK interest rates doubling this year would be 'no great shock', says Bank of England deputy governor

After Thursday’s policy meeting, financial markets now price in a nearly 70 per cent chance of a BoE rate hike in May

'My guess is what’s happening right now in the first quarter, I think (household real incomes) are starting to rise,' Mr Broadbent said (AFP/Getty)

Bank of England Deputy Governor Ben Broadbent said on Friday he did not think a couple of interest rate hikes in the space of a year should come as a great shock, but added that the central bank had not fixed any path for tightening policy.

Speaking a day after the BoE surprised investors by saying it was likely to raise rates sooner and by more than it thought a few months ago, Mr Broadbent said the low level of rates in recent years reflected global factors.

“But nor do I think if there were to be a couple of 25 basis point rises in a year, that that would somehow be a great shock,” Mr Broadbent said in a BBC radio interview.

After Thursday’s policy meeting, financial markets now price in a nearly 70 per cent chance of a BoE rate hike in May.

Asked if he would distance himself from a media report that interest rates are likely to double from 0.5 per cent by the end of 2018, Mr Broadbent said: “I don’t know... We do not fix the path of interest rates in advance. What is fixed is our remit and rates change with the economy.”

Britain’s economy slowed after the 2016 Brexit vote but has fared better than many investors expected at the time of the referendum, thanks largely to a strong rebound in the United States, Germany and other key trading partners.

Mr Broadbent said he thought the surge in stock market volatility this week reflected the fact that investors had not properly priced in the possibility that stronger economic growth can also generate inflation pressures.

On the outlook for Britain’s economy, Mr Broadbent said he thought income growth in real terms would return in the current quarter and that inflation was now pretty close to its peak.

“My guess is what’s happening right now in the first quarter, I think (household real incomes) are starting to rise,” he said.

“The pass-through from higher import prices is probably at its peak right now and we are starting to see wage growth improve.”

Reuters