Haskel Says BOE Should Wait for Jobs Data Before Raising Rates
One of the Bank of England’s more dovish members has laid the ground for higher interest rates in the coming months, prompting a sell-off of U.K. government bonds.
Jonathan Haskel, one of the nine members of the central bank’s Monetary Policy Committee, said he’s concerned about “second-round” effects of inflation and that rates would have to increase if the jobs market remained tight.
While he said he wants to see more data on whether acute employment shortages are proving persistent, the comments indicate that Haskel may be ready to back higher borrowing costs in the coming months, though perhaps not at the next meeting on Dec. 16.
“I am in team vigilant, if I can put it that way,” Haskel said after a speech on Tuesday. “I think a lot of these prices are transitory, but it’s the second-round effects that we’ve got to be very careful about. If monetary policy is too accommodating, then we may have difficulty with second-round effects.”
Gilts extended their decline, sending the U.K. 10-year yield higher to within a whisker of 1%, while money markets neared to betting on the BOE’s benchmark rate hitting 1.25% by the end of next year.
Haskel said the decision on when to tighten policy will hinge on labor market data. A report last week showed record vacancies and comparatively few available workers to fill them.
“We’re trying to be very vigilant about trying to understand whether the labor market is persistently tight or not,” he said at an event at the Adam Smith Business School, University of Glasgow.
“If the labor market stays tight, bank rate will have to rise,” Haskel said in his speech. He added that the evidence so far suggests “the labor market is buoyant” and that higher rates would signal that the economy was recovering.
The decision on when to tighten policy will hinge on the pace that people return to the workforce to fill the record level of job vacancies, Haskel said. Official employment due two days before the Dec. 16 decision will be key to the vote.
He set out a few scenarios that might guide the BOE in the months ahead.
- If the evidence is that the 360,000 people who have left the workforce since the pandemic are returning, the need for higher rates will not be so pressing. In that case, “monetary support is gently withdrawn,” Haskel said
- Should workers return more slowly, rates would need to rise “perhaps more vigorously”. Either way, higher rates should be seen “as a successful transition back to a normal economy”
- In a third scenario where the recovery stalls, which he described as less likely, “one might want to wait before normalizing policy such that normalization begins only once we are more confident that the recovery is entrenched”
Haskel voted to hold rates at 0.1% in November and is considered one of the most dovish members of the MPC. Investors expect an increase to 0.25% at the next BOE meeting on Dec. 16.
Jobs market data since the end of furlough last month have signalled that the labor market is strong but Haskel said official figures “should give an even clearer steer of the post-furlough labor market.”
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