Bank of England's Haldane says expects to vote for rate hike this year

By William Schomberg

LONDON (Reuters) - The Bank of England's chief economist, Andy Haldane, said he would likely vote for a rate hike later this year, striking a more hawkish tone than BoE Governor Mark Carney and adding to signs of a split at the central bank.

The comments from one of the BoE policymakers who is usually considered supportive of keeping rates low pushed up the value of sterling by more than half a cent against the U.S. dollar and hit government bond and share prices.

Last week, the BoE's eight policymakers voted 5-3 to keep interest rates on hold at a record low, a closer outcome than expected by investors, triggering a spike in the pound.

 

Haldane said he was likely to switch to supporting UK's first rate hike in a decade soon, given the strength of the global economy and the resilience of Britain's economy to last year's Brexit vote.

"Provided the data are still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year," he said in a speech published on Wednesday.

In August last year the BoE cut interest rates to 0.25 percent and took other measures to give the economy a boost after signs of a sharp slowdown caused by the referendum decision in June to leave the European Union.

In the end, Britain's economy withstood the referendum shock better than expected in 2016, although it has shown signs of a slowdown since the start of this year as the fall in the value of the pound pushes up inflation and pinches consumer spending.

In a speech delivered on Tuesday, BoE Governor Carney said he first wanted to see how the economy coped with Brexit talks in coming months before he would consider a rate hike.

But Haldane listed several factors behind his shifting view. These included signs that British economic growth was less reliant on consumers, a recent jump in the country's main inflation rate to 2.9 percent - far above the BoE's 2 percent target - and signs in the bond market that "policy actions rather than words" were what counted for investors.

Furthermore "any tightening in policy needs to be put in context," he said. "The first 25 basis-point rise in UK interest rates for 10 years seems like a momentous step. But it would still leave monetary policy highly accommodative by any historical metric."

STILL SOME RISK OF SLOWDOWN

Haldane said he had decided not to vote for a rate hike last week because there were few signs of wage growth picking up and because there was "still some chance" of a sharper-than-expected slowdown in the economy.

"Both are reasons for monetary policy not to rush its fences. Nor does it need to do so, given the slow build of nominal pressures in the economy," he said.

He also said the inconclusive outcome of Britain's national election earlier this month - which cost Prime Minister Theresa May her majority in parliament - had "thrown up a dust-cloud of uncertainty", he said.

"It is unclear what twists and turns lie ahead, with potentially important implications for asset prices and, at least potentially, confidence among businesses and consumers," Haldane said.

"I do not think adding a twist or a turn from monetary policy would, in this environment, be especially helpful in building confidence, at least until the dust cloud has started to settle."

(Reporting by William Schomberg; Editing by David Milliken and Andrew Heavens)