The Bank of England might benefit from waiting to see the impact of the Omicron coronavirus variant on the UK economy before raising interest rates, one of its policymakers has said.
Michael Saunders, who voted last month to raise interest rates, said he believed there might be benefits in taking no action when the central bank meets to set borrowing costs in just under two weeks.
The external member of the Bank’s nine-member Monetary Policy Committee (MPC) was outvoted at its last meeting in November, when he unexpectedly abstained from raising rates for the first time since the spread of Covid-19, instead leaving rates unchanged at an all-time low of 0.1%.
“At present, given that the new Omicron Covid variant has only been detected very recently, there might be particular benefits to waiting to see more evidence on its possible effects on public health outcomes and therefore on the economy, ”Saunders said in an online speech on Friday.
However, he warned that there could also be potential costs in delaying a rate hike should the variant prove to have a limited impact on demand for goods and services amid mounting inflationary pressures in the economy. British.
“There are potential costs and benefits to waiting for more data. You can see the potential benefit; you learn a bit more about how Omicron might affect the economy, ”he said.
“The potential cost is that inflation expectations have recently risen, especially among households and financial markets. I have some concern about this.
Saunders said keeping interest rates at 0.1% could further raise expectations of higher inflation levels, if Omicron turns out to be relatively benign for the economy.
The new variant could also worsen disruptions to global supply chains, exacerbating existing bottlenecks in a development that could add to inflationary pressures.
« [That would] means that the subsequent tightening of policy turns out to be more brutal, more painful than it might otherwise be, ”he said.
Saunders was one of two MPC members who voted in early November for an immediate interest rate hike to 0.25%. The next rate-setting panel decision will be announced on December 16.
“If it hadn’t been for Omicron, you could probably guess what the direction of my political vote would be,” he said.