By Ana Nicolaci da Costa
LONDON, June 17 British interest rates have a
strong chance of rising before next May, a member of the Bank of
England's rate-setting committee told a newspaper, reinforcing
the view that the central bank may still tighten monetary policy
BoE Governor Mark Carney said last week that interest rates
might rise earlier than the market had been expecting. That led
market participants to bring forward expectations of a rate hike
to 2014 from early next year.
David Miles, the most persistent advocate for more stimulus
in 2012 and 2013, told the Times that consistently strong growth
might have influenced the change in tone.
"I guess until very recently the expectation implied by the
short end of the yield curve (was) that the first rise in
interest rates might be April or May next year. Clearly there is
the chance that the rise will be before that," Miles said.
"Consistently, growth has come in stronger. The longer that
lasts, clearly one starts to change one's view of how robust the
recovery is and that will affect when you think is the right
time to start normalising policy."
Miles said the chance of a rate rise before the end of the
year was above the 10 percent probability which markets had
previously priced in, which he described as "implausibly low".
Britain's economy kept up last year's strong pace of growth
in the first three months of this year, and a record number of
people found work in the three months to April.
But subdued inflation has enabled the BoE to keep rates at a
record low. Figures on Tuesday showed that annual inflation
dropped to 1.5 percent in May, its lowest since October 2009.
Miles said he had no desire to keep up his record of never
voting for a change in interest rates - which some in the market
took to mean that he was more open to voting for a rate hike.
Minutes from the latest monetary policy meeting are due on
Wednesday and investors will scour them to see if more
policymakers voted for rate hikes.
The latest change in the Bank's tone comes after its forward
guidance had to be adjusted earlier this year because of a
surprisingly fast fall in unemployment.
Forward guidance was adopted to manage market expectations
without needing to provide more stimulus. The original guidance
stipulated that the Bank would not consider raising rates until
unemployment fell below 7 percent.
Asked about its credibility in light of those changes - and
whether people would pay attention to the BoE's remaining
message that any rise in rates will be gradual and limited -
Miles defended the policy.
"That first stage of forward guidance served its purpose in
heading (off) a risk of a rapid tightening in the stance of
policy in the embryonic stage of a recovery. We've gone beyond
that now, so it makes sense the message has to change," Miles
"The committee can agree that the most likely outcome at the
moment is that, when the rate increases come, they are probably
going to (be) gradual," he said.
"There is no point in saying definitely because stuff
happens that you can't expect - they will be gradual and to a
level that is lower than what we used to think of as normal."
(Additional reporting by Tasim Zahid in Bangalore; Editing by