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Policymaker plays down interest fears

A key Bank of England policymaker has moved to quell fears over spiralling interest rates by playing down the case for a June increase and rubbishing rumours that rates could double from their present 4.25% level.

Stephen Nickell of the bank’s Monetary Policy Committee (MPC) told The Times that although rates would continue to rise, he denied that a June hike was inevitable, and reiterated the MPC’s commitment to small, gradual increases.

Despite fears that rocketing house prices may push inflation above the government’s target level of 2%. Nickell said that the committee would not consider any drastic measures to bring short-term inflation under control.

“I don’t think it’s necessary to raise rates immediately to try and hit the [inflation] target a few years out, when you know that raising rates gradually is a better strategy in a world where there is quite a high level of uncertainty,” said Nickell.

“Our job isn’t to slow down house price inflation to within single digits in the next six months. That would be ludicrous. It’s not our aim in life to cut consumption growth to minimal levels and cause the housing market to collapse. That’s not our job, and it would be a foolish job anyway,” he continued.

MARKETS UNCONVINCED

Nickell's comments came on the back of reports that the Council of Mortgage Lenders (CML) believed rates should be doubled in order to avoid a crash in the housing market. The CML has since clarified that it was not advocating a twofold increase.

However, gilt and futures markets remained largely unmoved by Nickell’s remarks.

“They’ve put the view in the market that they are going to step up the pace of tightening despite what Nickell says here,” said analyst Howard Archer.

Speculation that the MPC is set to spring a half-point rates increase in June intensified on Thursday when the Nationwide reported that house prices rose by 1.9 percent in May, with the annual rate climbing to nearly 20 percent.

Nickell also confirmed that the MPC would not try to pre-empt the inflationary effect of rising oil prices, but would only act after any such pressure filters through.

“The fundamental thing about monetary policy is the second-round effects. If [higher oil prices] feed through to wages then monetary policy has to respond. Otherwise, of course, we may not wish to raise rates as rapidly as we might otherwise do,” he concluded.