Bank of England policymakers weigh up need for more rate hikes

By Andy Bruce

LONDON (Reuters) - The Bank of England last month softened its language on the need for more interest rate increases as rate-setters stressed downside risks to the economy, in addition to existing worries about inflation becoming embedded in expectations.

But despite this, financial markets still expect the BoE to raise interest rates to around 2% by the end of this year, more than double their current level, following back-to-back rate rises at the central bank's past three policy meetings.

In March, eight of the nine Monetary Policy Committee (MPC) members voted to raise Bank Rate to 0.75% from 0.5%, taking the benchmark for British borrowing costs back to its pre-pandemic level.

Deputy Governor Jon Cunliffe was the only policymaker to vote against the rate hike, warning of a big hit to demand from higher commodity prices.

Following is a summary of MPC members' recent comments ahead of the MPC's next scheduled announcement on May 5:

ANDREW BAILEY, GOVERNOR

March 28: "It's appropriate to tighten policy in these circumstances. But we do so recognising the uncertainty, and that there are risks to the outlook for inflation on both sides."

"And it's really with that in mind that we changed our language in our last meeting.... That is a reflection of, a recognition of the level of uncertainty and the risks we face."

"We expect that ... pressure on demand will weigh down on domestically generated inflation, other things equal at the moment."

BEN BROADBENT, DEPUTY GOVERNOR

March 30: "As a big net importer of manufactures and commodities, it's doubtful that the UK has ever experienced an external hit to real national income on this scale."

"From the narrow perspective of monetary policy it will result in the near term in the difficult combination of even higher inflation but weaker domestic demand and output growth."

JON CUNLIFFE, DEPUTY GOVERNOR

April 4: "I do not think we are yet seeing a psychology of persistently higher inflation emerge."

"I am not at present convinced that we will inevitably have to lean heavily and constantly against an embedding of an inflationary psychology."

HUW PILL, CHIEF ECONOMIST

Feb. 24: The BoE will seek to bring fast-rising inflation down in a "measured way" and one "that doesn't disturb the rest of the economy", Pill said in a local newspaper interview.

Feb 9: "Restricting ourselves to a 25 basis point (rate rise) now - albeit with the prospect of more to come in the coming months - is an investment in containing market expectations of aggressive 'activism' that I saw as worth making. That is what I would label a 'steady-handed' approach."

CATHERINE MANN, EXTERNAL MPC MEMBER

March 1: "When we think about the policy strategy it is very much a front-load to offset or counter inflationary expectations."

Feb 25: Asked why she voted for a 50 basis point rate hike in January, Mann said: "To me, the data was still showing very robust expectations and I thought it was important to dampen those expectations using a 50 basis point increase."

DAVE RAMSDEN, DEPUTY GOVERNOR

Feb. 22: "Some further modest tightening in monetary policy is likely to be appropriate in the coming months."

"New shocks can arise .... (This) makes it particularly difficult to make predictions about where monetary policy might be headed in the medium term."

SILVANA TENREYRO, EXTERNAL MPC MEMBER

March 2: "When you are talking about spirals, you are talking about explosive dynamics which we haven't seen yet. If anything, we are just starting the first round, so how can you talk about second round (effects)."

MICHAEL SAUNDERS, EXTERNAL MPC MEMBER

March 1: Saunders said there was "significant excess demand" in the economy and "inflation expectations are not as well anchored as I would like".

"All else equal, prompt tightening now could, in my view, help limit the total scale of tightening that will be needed to return inflation to target."

JONATHAN HASKEL, EXTERNAL MPC MEMBER

Feb. 23: Asked why he voted to raise interest rates by 50 bps in February, Haskel said: "I have to stress it's a very uncertain situation and it's a very, very finely balanced decision."

Haskel said he was "nervous" about a temporary blip in inflation becoming embedded in expectations.

(Writing by Andy Bruce; Editing by David Milliken)