BOE’s Vlieghe says recent data adds to warranting removal of monetary stimulus

BOE MPC external member Gertjan Vlieghe with scheduled speech 23 March

• central outlook consistent with 1 or 2 0.25% rate hikes per year in forecast period
• rates will need to rise over f/c period if current balance of gobal risk vs Brexit headwinds persist
• tight labour market continues to increase domestic inflationary pressures
• only
  promise that all members of the MPC can and do make is to continue to respond to the data to ensure that
  inflation returns to its 2% target.

Dr Gertjan Vlieghe joined the MPC  1 Sept 2015 and initally tended toward a dovish stance but more hawkish since Autumn 2017. Nothing really in his speech though that we don’t already know re overall BOE position  i.e.hawkish but cautious.

GBPUSD rallies to test 1.4150 EURGBP down to 0.8725 testing option related support after failing at 0.8755 all as per my order board post earlier.

Says Vlieghe further:

“I have said on a number of occasions that, given that our policy rate is close to its lower bound, policy has
less room to respond to downside risk than to upside risk, which means that patience is warranted when
tightening policy.But by the autumn of 2017, I thought the balance of risks to the outlook had shifted
sufficiently to justify a gradually rising path of Bank Rate, starting with a quarter point hike in November.
Since then, the data have shifted further in the direction that warrants a continuation of the removal of
monetary stimulus over the forecast period.
Provided the balance between global tailwinds and Brexit headwinds remains where it is now, supporting UK
growth at or above potential, and provided evidence continues to accumulate that a tight labour market is
actually pushing up domestic inflationary pressures, I expect that Bank Rate will need to rise further over the
forecast period.

The current central outlook is, in my view, consistent with one or two quarter point rate
increases per year over the forecast period. Such a path would bring us closer to the neutral policy rate,
which I continue to think is likely to be well below the neutral rate that prevailed in the pre-crisis decades.

There is significant uncertainty about the path of rates, and both lower and higher paths are possible,
depending on how the economy evolves. While I think it is useful to provide a snapshot of how today’s
central growth and inflation forecast map into my view of the likely central path of interest rates, this is a
forecast, not a promise.

If growth and inflation turn out differently from this central forecast, the path of
interest rates will be different too. That should not be seen as a mistake, or a breaking of an earlier promise.
It should be seen for what it is, namely an appropriate response to a changed economic outlook. The only
promise that all members of the MPC can and do make is to continue to respond to the data to ensure that
inflation returns to its 2% target.”

Full speech here

Prior to his appointment Vlieghe had been a partner and senior economist at Brevan Howard Asset Management, researching global macroeconomic trends and their interaction with asset prices. From 2005 to 2007 he was a bond strategist at Deutsche Bank. From 1998 to 2005 he held a number of posts at the Bank of England, including the post of Economic Assistant to Governor Mervyn King

                                     BOE’s Vlieghe speaking in Birmingham