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Bank of England deputy governor sides with Mark Carney on opposing an interest rate hike – for now

Bank of England deputy governor Jon Cunliffe said today that policymakers have to wait and see how the UK economic slowdown plays out before deciding whether to raise interest rates.

Cunliffe’s comments broadly echo those of Bank governor Mark Carney, who last week said ‘now is not the time’ to hike rates.

In an interview with BBC’s Radio 5 Live, Cunliffe said he wanted to see if growth in Britain’s exports and business investment could offset a slowdown in consumer spending.

Wait and see approach: Bank of England deputy governor Jon Cunliffe.

‘(Consumer spending) is slowing as households’ real incomes are squeezed by higher inflation, we expect some of that slowing to be offset by growth in business investment, growth in exports. And I want to see how that plays out,’ he said.

‘(We) do have to look at what’s happening to domestic inflation pressure, and I think that on the data we have at the moment, gives us a bit of time to see how this evolves,’ he added.

Cunliffe is the latest Bank’s Monetary Policy Committee member to publicly express views about rates policy after three members out of eight unexpectedly voted to raise the base rate from 0.25 per cent to 0.5 per cent at June’s meeting.

At recent past meetings only one member, Kristin Forbes, had voted for a rate hike.

But the committee looks set to stay finely balanced, with the Bank’s chief economist Andy Haldane signalling last week that he may vote for a rate hike in the second half of the year if growth remains stable.

Tide is turning: More MPC members are considering raising rates, including the Bank’s chief economist Andy Haldane.

Raising interest rates can be a way to stop inflation from growing, but there are concerns that if rates are hiked and borrowing costs rise, Britons will struggle to pay off debts and mortgages and this could hurt the economy.

The Bank has been flagging its concerns about rising personal debt for a while now and yesterday it told banks to hold more capital to make sure they can withstand possible future shocks in the face of rapid growth in credit card and car finance debt.

Cunliffe said that inflation rising to 2.8 per cent in May was ‘not a comfortable place’ for any member of the MPC.

But he noted it was important to understand whether the jump in inflation has been caused only by the pound’s fall in the aftermath of last year’s Brexit vote or if it has also been generated domestically.

Most economists think the Bank will vote to hold rates for the next few months in spite of the dissent on the MPC. And even if the Bank is seen as paving the way for a rise, it is expected to be a small one.