Bank of England deputy governor Ben Broadbent keeps markets guessing on interest rate vote

The central bank is more split than at any time since 2011​ but in a speech in Scotland Mr Broadbent declined to offer an opinion on which whether rates should rise or not

Ben Chu
Economics Editor
Tuesday 11 July 2017 15:50 BST
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Mr Broadbent warned that the UK would be poorer if Brexit resulted in less trade with the European Union
Mr Broadbent warned that the UK would be poorer if Brexit resulted in less trade with the European Union

A deputy governor of the Bank of England, Ben Broadbent, kept financial markets guessing on Tuesday about how he will vote in a crucial upcoming meeting on interest rates.

The central bank is more split than at any time since 2011 about whether or not rates should rise, with a 5-3 division at its meeting in June on whether the cost of borrowing should increase from its current record low of 0.25 per cent.

The vote was ultimately in favour of a hold but, since that meeting, one member of the Bank's Monetary Policy Committee, Andy Haldane, has signalled that he has changed his mind and now favours a rate hike.

The MPC will next meet in August. If it decided to increase rates this would be the first tightening of monetary policy in a decade.

But in a speech in Scotland Mr Broadbent declined to offer an opinion on which whether rates should rise or not.

Instead, he extolled the economic benefits of globalisation and warned that the UK would be poorer if Brexit resulted in less trade with the European Union.

"A significant curtailment of trade with Europe would force the UK to shift away from producing the things it’s been relatively good at, and therefore tends to export to the EU, and towards the things it currently imports and is relatively less good at," he said.

"All else equal, the first shift - i.e. away from services exports - would tend to lower UK income, the second to raise certain costs - that is, of food and machinery."

"Trade really is mutually beneficial and less of it costs us all."

The MPC currently has eight members rather than the usual nine since Charlotte Hogg resigned as a deputy governor earlier this year and has yet to be replaced.

One of the three MPC members who voted in favour of a rate rise in June, Kristin Forbes, has since left the Bank and will be replaced at the August meeting by Silvana Tenreyro, whose views on rates are unknown.

Two external members - Ian McCafferty and Michael Saunders - have re-itereated their belief that the time has probably come for rates to rise.

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But another external member, Gertjan Vlieghe, told The Independent on 3 July that his view had "not changed" that a rate rise would be premature.

The Bank's Governor, Mark Carney - who has a casting vote if the MPC is split 4-4 - said in Portugal on 28 June that a rate rise is likely to become necessary, which sent the pound up sharply, but some analysts said he wasn't signalling a change of view from his previous dovish stance.

Another deputy governor, Sir Jon Cunliffe, has said recently that he wants to see how the data on inflation evolves before hiking.

Inflation hit 2.9 per cent in May, considerably higher than the Bank was expecting, but a host of other hard data and survey releases over the past fortnight have been disappointingly weak, which could dissuade some policymakers from voting for a hike.

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