The second member of the Bank of England’s interest rate setting committee strongly hinted on Thursday that he will vote to tighten monetary policy at the next meeting on August 5.
Michael Sanders, an external member of the Monetary Policy Committee, said that action should be taken to curb inflation before the effects of the cancellation of the UK vacation plan in September become apparent.
He is the second of the nine members of the Monetary Policy Committee to suggest that monetary policy should be tightened after an unexpected upward move in monetary policy. Inflation rate reached 2.5% In June, in the data released on Wednesday.
Soon after the data was released, the deputy governor of the Central Bank, Sir Dave Ramsden, warned that the Bank of England may need to tighten policy “earlier” than previously thought.
Sanders said that as long as the current trend continues in the next few weeks, “in order to keep inflation back to the 2% target, it may soon become appropriate to withdraw from some of the current monetary stimulus measures.”
“Options may include scaling back the current asset purchase plan — ending in the next one or two months and before buying the entire £150 billion — and/or taking further monetary policy actions next year,” he said in an online network Added at the seminar.
Sanders will be seen as an important voice expressing hawkish views, because he is known to support extremely loose policies during the pandemic.
Sanders and Ramsden’s views are consistent with the Bank of England Governor Andrew Bailey’s insistence that the bank is not before the latest shocking inflation data. “Howling in the wind“As inflation is out of control, it is correct not to take any measures to curb price increases.
In his speech, Sanders emphasized why he disagreed with the governor’s position in early July. He predicts that by the end of the year, inflation may rise by nearly 4% before slowing down, but this rise increases the risk of inflation continuing to rise.
“Tighten moderately [monetary policy] attitude. .. Will help to ensure that the inflation risk for the next two to three years is balanced near the 2% target, rather than tending to the upside (I doubt this is the case with the current policy stance),” Sanders said.
He added that this will ensure a smooth change in policy and is “more like relaxing the accelerator rather than applying the brakes.” He said he believes that the conditions set by the Monetary Policy Committee for tightening policy are now met.
Sanders added that waiting for the full impact of the vacation plan to end is meaningless because it means that action will not be taken until at least February, and “will increase the risk of higher inflation expectations in the coming months”.
“For me, the question of whether to reduce our current asset purchase plan ahead of time will be considered at our upcoming meeting,” Sanders said, but he warned that this was not an announcement of his voting intentions.