By William Schomberg
LONDON (Reuters) - A Bank of England policymaker sought on Friday to drive home its message that interest rates are likely to rise, a day after investors took its shift to a more downbeat view of the economy as a sign that it was in no hurry to move.
Sterling suffered its biggest daily fall in a month on Thursday and fell further on Friday despite Deputy Governor Ben Broadbent's comments, illustrating the difficulty the bank faces in trying manage expectations about when it might raise rates for the first time in more than 10 years.
Inflation is likely to remain above the central bank's 2 percent target for the next three years and unemployment is at its lowest level since the 1970s. On the other hand, the prospect of Brexit is weighing on investment by companies and consumers are struggling with weak wage growth.
Broadbent took to the airwaves on Friday to talk about the prospect of rates going up, a day after the BoE said investors could be underestimating the scale of rate hikes over the next three years.
"We do think the economy will continue to grow. We think wage growth will pick up," he told BBC radio. "I think there may be some possibility for interest rates to go up a little bit."
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He also sought to dispel concerns that a return to slightly higher borrowing costs could hurt Britain's economy.
"One shouldn't overdo the significance of this," Broadbent said. "If and when it happens, there will be a lot of talk about the first rate rise since 'x'. But it's just a rate rise and we got perfectly used to rate rises of this size in the past."
STRUGGLING TO GIVE A STEER
But sterling-averse investors appeared to ignore the message on rates - which the Bank has given before - and focused more on the cut in its forecasts for economic growth and wages.
Fathom Consulting said the Bank "tried to have its cake and eat it" as it voted to keep rates on hold once again and told investors they were not pricing in enough future rate hikes.
"Markets have grown wise to these siren voices and have ignored the Bank's message," Fathom economist Joanna Davies said.
The BoE's current assessment also assumes households and businesses will remain confident that Britain's departure from the EU will be fairly smooth, while financial markets are more pessimistic.
BoE Governor Mark Carney has struggled to give a reliable steer on the likely path for interest rates since he took over the British central bank in 2013, often seeing his guidance overtaken by unexpected developments in the economy.
Broadbent also told the BBC the BoE's monetary policymakers were not very concerned about the debts of British households because consumer credit, relative to incomes, remained much lower than its level before the financial crisis.
"It is absolutely right that the prudential side of the Bank ... should be concerned about pockets of debt that are growing very, very quickly," he said. "The MPC (Monetary Policy Committee) does not think this is a first-order macro issue for the economy."
(Writing by William Schomberg; Editing by Shri Navartatnam and John Stonestreet)