LONDON (MNI) – It is not the right time for interest rates in the
U.K. to rise, a senior Bank of England rate setter says Thursday.

In an interview with the Daily Mail, David Miles, an external
Monetary Policy Committee member, says: “We haven’t yet got to the point
at which a tightening in monetary policy is the right thing to do.”

Whilst acknowledging that inflation in the U.K. remains
“uncomfortably” above target, Miles says inflation is likely to fall
back towards target, despite a continued modest pick-up in growth.

“My own assessment of the most likely outcome is actually growth in
the economy continues and perhaps picks up a bit from here, and
inflation moves back towards the target level,” Miles told the paper

“And if that is the way things play out, it is much less likely
there would be a need for a further easing in monetary policy,” he
added.

Miles’ comments make clear he is somewhat less hawkish than his
fellow MPC members Andrew Sentance or Adam Posen, both of whom have
issued inflation warnings recently. Indeed, Sentance backed a 25bp rate
hike at the June meeting of the committee.

While Miles tells the Mail that he “certainly see(s) great
advantage in gradual movements in monetary policy where they are
possible,” he adds that “My own judgment is that we haven’t yet got to
the point at which a tightening in monetary policy is the right thing to
do.”

Miles concedes that there is an issue with the way in which CPI has
persisted so far above the 2% target level but attaches a lot of weight
to one-off factors, such as the VAT hike as well as the exchange rate
and higher commodity prices.

But Miles emphasises that inflation is unusually “volatile,” and
was below 1.0% less than a year ago.

“We were pretty substantially under the target level. We are
uncomfortably above the target level now,” he says.

He believes that inflation is about to fall back towards its
target – if slowly.

“The latest inflation data suggest we are slightly moving back
towards the target level.”

Miles says that he is more optimistic now than he was a few months
ago on the state of the recovery and that the UK economy is in a good
position to weather a period of fiscal austerity.

“We are getting an ongoing benefit, in fact a benefit that is
building up and probably will be stronger in the future than it is right
now, from the very substantial depreciation in sterling,” he argues.

That will provide for a “much easier environment (in which) to
bring down the deficit and debt”.

–London newsroom 0044 20 7862 7499; email: ukeditorial@marketnews.com

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