BOE Doves Are in Command as Vlieghe Opposes Curtailing Stimulus

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It’s too early to tighten U.K. monetary policy, at least until there are clearer data on how the labor market copes when government support measures are unwound.

That appears to be how the Bank of England’s Monetary Policy Committee will vote at next week’s meeting, after Gertjan Vlieghe on Monday became the latest member to rule out supporting any attempt to curtail the central bank’s stimulus soon.

“Yes, the economy has been growing rapidly, but on the most recent data it remains an average recession away from full employment,” Vlieghe, whose term on the rate-setting committee expires next month, said in a speech.

His comments suggest that a majority of the MPC is in favor of keeping the current ultra-loose stimulus setting in place. Only two members, David Ramsden and Michael Saunders, have so far indicated they may support scaling back the bank’s bond-buying program.

Vlieghe said he expected the recent pickup in inflation to prove temporary, and listed rising infection rates as a result of the delta variant among the reasons that make him reluctant to take his foot off the stimulus pedal.

“It will remain appropriate to keep the current monetary stimulus in place for several quarters at least, and probably longer,” he said. “And when tightening does become appropriate, I suspect not much of it will be needed, given the low level of the neutral rate.”

Liz Martins, an economist at HSBC in London, said Vlieghe’s remarks effectively confirmed that the balance on the MPC remains tilted in favor of its doves.

“We have had tentatively better news on Covid infections in the past few days, but it’s very early days, and counterbalancing that is the weak May growth rate and the apparent majority view that the inflation pressures are temporary,” she said. “It’s very possible Saunders and Ramsden vote to curtail quantitative easing, but I suspect they will be on their own if they do.”

Vlieghe appeared similarly sanguine when asked about the debt burden the government has incurred to support the economy through the pandemic. Many countries including the U.K. now have debts equal to around 100% of GDP and there is “absolutely no sign” that people are starting to worry about sustainability, he said.

“The service burden for that debt is actually near all-time lows and so it’s not causing undue pressure on the government’s finances to be able to service that debt currently,” he said.

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