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Sterling accelerates gains after BoE’s Haldane turns hawkish

The pound has accelerated its gains, rising off its lowest level in two months, after Andy Haldane became the latest member of the Bank of England’s rate-setting committee to come out in favour of tighter monetary policy.

Despite not voting for a hike at last week’s June meeting, Mr Haldane – considered one of the most dovish members of the MPC until now – said a move to “partially” withdraw some of the BoE’s stimulus measures would be “prudent relatively soon”.

Sterling rose 0.4 per cent against the dollar having been 0.1 per cent stronger before the speech, while 10-year gilt yields gained 2 basis points to 1.02 per cent.

Earlier this morning, the pound wiped out all its gains following the government’s call for a snap election in April. Investors had sold the currency after BoE governor Mark Carney hit back at hawks on the MPC, arguing monetary policy should stay steady in the face of weak growth.

But in a speech in Yorkshire today, Mr Haldane said raising rates this year could help prevent the BoE falling behind the curve and tightening too fast in the future.

He said:

Having weighed the evidence, I think that the balance of risks associated with tightening “too early”, on the one hand, and “too late”, on the other, has swung materially towards the latter in the past six to nine months.

The risks of tightening “too early” have shrunk as growth and, to lesser extent, inflation have shown greater resilience than expected. And if policy tightened “too late”, this could result in a much steeper path of rate rises later on.

The BoE launched a three-pronged stimulus package after the UK’s Brexit vote, cutting rates to record lows, re-starting QE and launching a cheap funding scheme for retail banks in August.

Mr Haldane’s comments suggest he has growing sympathy with the three MPC members who voted for a rate rise in June – the tightest BoE decision in six years.

Having been appointed as chief economist in 2014, Mr Haldane has yet to vote for a rate hike. The emergence of his dissent against Mr Carney – who has backed keeping policy neutral – comes after Kristin Forbes, Ian McCafferty and Michael Saunders all voted for a rate rise last week on concerns of over-shooting inflation.

Annual inflation is expected to breach 3 per cent later this year having hit a four-year high of 2.9 per cent last month.

First chart: Bloomberg