Bank of England Monetary Policy Committee member Davis Miles repeated Monday that he is likely to vote for a hike in Bank Rate before his term ends in May 2015.
Miles, a noted “dove”, joined the MPC shortly after rates fell to the historic low of 0.5% in March 2009 and has voted to keep rates on hold at every meeting since.
However, in an op-ed piece penned for Monday’s Daily Telegraph, Miles says the chance of him going a full two terms without voting for a change in the level on Bank rate had fallen a good deal in recent months.
“I was facing the prospect that I would become the first MPC member to leave the committee having never voted to change interest rates … I am glad to say that I think the chances of my setting this record have fallen a good deal over the past several months, a period when the recovery has come to look firmer,” he said.
However, Miles said any normalisation of rates in his final year on the MPC both appropriate and good news.
He said a sustained recovery was now in place, thankfully with inflation remaining subdued, currently below the Bank’s 2% target rate. This, he said, meant rates were set to rise as the recovery took hold, not to fight off rising inflation.
“The process of normalising interest rates, when it starts, looks to me likely to be one taken because of the resilience of the recovery rather than because of a need to react to excessively high inflation. This is more a case of scaling back the emergency medicine as the patient begins their recovery, rather than invasive surgery to deal with a sudden, life-threatening illness,” Miles said.
But he again underlined that the need for rate hikes is not immediate, as there evidence of slack in the economy.
“There are signs that there is still spare capacity in the economy – continued low wages settlements is one of them. So the stimulus given by very low interest rates is not something that has to be removed right now,” he noted, echoing comments he made last week.
He did though emphasise that the time for higher rate sis approaching, although there was still reasonable debate as to the timing.
“(The) day is coming. When the right time will be to begin raising rates is something that reasonable people can disagree on. I suspect my reasonable colleagues on the MPC will not all see it the same way,” Miles added.
In a further echo of his comments last week, Miles writes that he does not believe rates will return to “normal levels” in the UK. Although he doesn’t suggest a new normal level for rates, his reasoning suggests that Bank Rate will settle somewhere in the region of 2.5%. That is a similar level to that posited by Andy Haldane, the Bank’s Chief Economist, at the weekend.