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Exclusive: Former Bank of England policymaker calls for interest rates to be held amid high inflation - CITY.A.M
A former Bank of England rate-setter has suggested that high inflation levels call for interest rates to be held at 4.5 per cent in May.
The majority of investors and analysts are expecting the Bank to cut interest rates next month to ease low growth concerns, with up to three more cuts priced in until the end of the year.
But Jonathan Haskel, who was a member on the Bank’s Monetary Policy Committee (MPC) until August last year, has said that a “wait and see” approach should be favoured despite deflationary effects from President Trump’s tariffs .
“Core inflation in the UK, dominated by domestically generated service sector inflation, is above target-consistent levels,” Haskel told City AM.
“Thus, and given the uncertainty around what the enduring tariff level will be, I would favour a ‘wait and see’ policy and so hold UK rates at the next meeting.”
Inflation hit 2.8 per cent in February this year, with a five per cent rise in services prices driving the high rate. The Bank of England’s consumer price inflation (CPI) target rate is two per cent.
Trump gave all countries except China a 90-day reprieve from tariffs on Wednesday night but forecasters and policymakers fear the overall outlook for the UK will have barely improved due to uncertainty and the continued likelihood of tariffs being imposed.
Haskel acknowledged that if sweeping tariffs were imposed, they would depress economic activity and drag growth as the world adjusts to its trade relations with the US.
He also echoed current MPC members Swati Dhingra and Megan Greene in claiming that the tariffs would be “deflationary for the UK economy”.
The flooding of cheap goods to the UK from countries including China – which is suffering the highest level of tariffs out of any country at more than 100 per cent – would also likely push prices down, Haskel said, but he nevertheless stuck to his position.
The comments provide insight into the thinking behind more hawkish members on the MPC as sticky inflation continues to unnerve policymakers. Clare Lombardelli, who is currently on the MPC, said at an event on Tuesday that the effect of Trump’s tariffs on inflation remained unclear as other countries continue to plan retaliation.
Haskel’s view differs from that of former deputy Bank governor Charlie Bean, who called for a cut of up to 50 basis points. Former rate-setter David Blanchflower went as far as suggesting an emergency meeting should be called before May 8.
