Leading central banker claims interest rate rises by Bank of England unlikely as markets are 'spectacularly misguided'


Markets are “spectacularly misguided” if they think interest rate rises are around the corner or that the economy is back to normal, a leading central banker has warned.

In a staunch defence of the Bank of England's new "forward guidance" policy, David Miles said a few quarters of upbeat growth do not mean the economy is fixed, and Britain is likely to see a slow fall in unemployment.

The Bank launched the radical policy last month, saying it will not consider raising interest rates from their record low until unemployment has fallen to 7 per cent from its 7.7  per cent level - barring a spike in inflation fears.

Forward guidance aims to give households and businesses confidence to spend, safe in the knowledge that rates will stay low for around three years.

But markets have responded to increasing signs of growth across factories, building sites, restaurants and banks with sharp rises in market swap rates which fix the price of mortgages, also driving the pound higher.

Investors increasingly predict unemployment will drop to 7  per cent sooner than the Bank's mid-2016 forecast, pricing in interest rate hikes by mid-2015.

But Mr Miles, one of nine members of the Bank's rate-setting Monetary Policy Committee (MPC), told an audience at Northumbria University in Newcastle that rate hikes would derail Britain's "embryonic" recovery.

He said: "I am now more confident that we are on the path to recovery than at any time since I joined the MPC in the first part of 2009.

"What a potentially self-confirming and stronger path for output and confidence does not need right now is tighter monetary policy."

He said Britain will need a long stretch of above-average growth to fill slack in the economy, meaning a steeper fall in the jobless total is unlikely.

Mr Miles pointed to huge numbers of workers who have been forced to take part-time work but want to work more - meaning a lot of slack in the jobs market.

Official statistics recently showed the number of people working part-time because they cannot find a full-time job has hit a record high of 1.45 million, and has doubled over the past five years.

Mr Miles said: "A very welcome couple of quarters of normal (or a bit above normal) growth should not mean that policy is about to be tightened."

He added: "It is quite possible to get average growth in the economy for six or eight quarters - and maybe above average growth - and yet unemployment does not fall much because productivity growth is rapid."

The policymaker said the "benign" tightening of market rates does not mean forward guidance has backfired.

He said the implication that the Bank does not welcome signs of recovery, because of the market rate rise, is an "Alice in Wonderland, upside down" mentality.

The Bank recently upgraded its forecast for third quarter growth to 0.7  per cent, matching the growth rate in the April to June quarter. Mr Miles said the economy might be expanding at an annual rate of 2.5  per cent to 3.5  per cent - which is "unambiguously good".

Until recently he had been one of a handful of MPC members calling for another dose of quantitative easing, but Mr Miles said "overwhelmingly positive" news on the economy means more asset purchases are no longer warranted.

His speech echoed a defence of forward guidance by fellow MPC member Ben Broadbent yesterday.


peopleFrankie Boyle responds to referendum result in characteristically offensive style
Life and Style
Couples have been having sex less in 2014, according to a new survey
New Articles
i100... with this review
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Holly's review of Peterborough's Pizza Express quickly went viral on social media
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Blahnik says: 'I think I understand the English more than they do themselves'
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Research Manager - Quantitative/Qualitative

£32000 - £42000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam