The Bank of England (BoE) would benefit from holding off on an expected interest rate hike and waiting until data on the impact of the Omicron coronavirus variant on the economy has been seen, a BoE policymaker has said.
In a speech, Micheal Saunders, an external member of the Bank’s nine-strong monetary policy committee (MPC), said he believed there could be advantages from taking a wait and see approach when the central bank meets to set borrowing costs in two weeks’ time.
At the last meeting, Saunders had been one of two policymakers who voted to increase the base rate from the historic low of 0.1%.
His comments come at a time when Federal Reserve, the central bank of the US, policymakers have signaled that they are likely to accelerate the winddown of their bond-buying program and open the door to earlier rate hikes than they had projected.
In the US rates currently stand at 0% and the Fed had previously said a rate rise was unlikely before 2023.
It has been claimed that the BoE was reluctant to move first when it came to being the first major central bank to increase rates.
Sauders said: “At present, given the new Omicron covid variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy.”
However, he warned that there could also be potential costs from delaying a rate rise if the variant turned out to have a limited impact on the economy.
He added: “There are potential costs and benefits of waiting for more data. You can see the potential benefit; you get to learn a bit more about how Omicron might effect the economy.
“The potential cost is that inflation expectations have drifted up recently, especially among households and financial markets. I have some concern about that.”
