09 March, AtoZForex, London – Although, rate markets are not pricing a rate increase by the Bank of England (BoE) in the coming 12 months, the central bank is still more likely to raise UK interest rates than cut them over the next two years. The Bank of England has plenty of scope to accommodate the economy if needed, one of the bank’s policymakers, Martin Weale, said on Tuesday.
Martin Weale argued against the perceptions investors that central banks around the world had run out of ammunition to boost their economies. Forcing central banks to cut rates into negative territory, with the BoJ interest rate cut as the latest example. Yet, Weale argued that “the scope for further asset purchases is substantial, while the obstacles we saw to reducing Bank Rate below 0.5 percent are no longer material.”
UK interest rates up rather down
In contrast to some economists, he said additional quantitative easing by the Bank of England would still likely be effective. Furthermore, like the Monetary Policy Committee as a whole, Mr. Weale said the next move in UK interest rates is more likely to be up rather than down, though he gave no clues on the timing.
“Financial markets can go up as well as down; they have risen sharply over the last month. Commodity prices are also higher while disappointing figures for productivity in the fourth quarter of last year mean that unit wage costs are firmer than the headline wage figures might indicate,” Mr. Weale added.
Pushing UK interest rates below zero
BoE’s ability to provide economic stimulus if needed, decreases the dangers associated with starting to increase rates, Weale said. Another measure of the BoE is to push interest rates below zero, following the lead of the European Central Bank (ECB) and the Bank of Japan (BoJ) along with other central banks.
Nonetheless, Weale reiterated that Bank of England Governor Mark Carney’s concerns, clarifying that such decisions could hurt bank lending and result in competitive exchange rate devaluations. “It is important to be aware of the risks associated with such an approach,” Martin Weale said.
Also see: Pre-ECB Daily Forex analysis (video)
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