No rate cuts until we beat inflation, says departing Bank of England hawk Jonathan Haskel

Interest rates should be left on hold until there is more evidence inflation is back under control, a key Bank of England official said yesterday.

Jonathan Haskel’s comments are the first from any member of the Bank’s nine-member Monetary Policy Committee (MPC) after a period of purdah since the general election was called.

Rates remains at a 16-year-high of 5.25 per cent and markets expect it to be cut at next month’s MPC meeting after inflation fell to its 2 per cent target.

But Haskel said: ‘I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.’ 

The comments failed to shift market expectations of a rate cut, with traders seeing a 60-40 chance that the Bank will move on August 1.

At the previous MPC meeting in June, officials decided against a pre-election cut but strongly hinted that an August move could be in the offing.

That would provide a boost for millions of borrowers just weeks into the new Labour government.

It comes after a prolonged battle to bring inflation down after it hit a four-decade high of 11.1 per cent – and some argue that it is too soon to declare victory. 

Haskel and his MPC colleague Catherine Mann have taken a hawkish view, and continued to vote for hikes until February this year, months after most decided to put them on hold last summer.

In a speech at King’s College London yesterday, Haskel – who is due to leave the Bank after August’s meeting – conceded there were ‘considerable encouraging signs’ on inflation.

However – as the Bank’s forecasts suggest – he said the decline in inflation to its 2 per cent target was temporary. 

Haskel said the ‘wage-price system’ – that is the way in which higher wages and prices can cause each other to push higher – had seen ‘a sequence of enormous shocks over recent years’.

That, together with ‘second-round’ effects – where previous inflation creates higher wages and this feeds into a further round of higher prices – could push inflation higher.

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