First UK rate hike likely in spring 2015, says BoE's Weale
By Ana Nicolaci da Costa and Andy Bruce
LONDON (Reuters) - The first rise in British interest rates is likely to come in the spring of next year, but it could be sooner if wages rise faster than expected, a Bank of England policymaker said on Thursday.
While the bank has stressed there is no rush to raise interest rates, last week it suggested that expectations for a hike in the second quarter of 2015 would be consistent with keeping inflation at its 2 percent target.
Monetary Policy Committee member Martin Weale provided the clearest expression of that view so far from policymakers since last week's inflation report, in an interview with Sky News.
"I think it is very helpful that we try and explain the most likely path for interest rates is that the first rise will come perhaps in the spring of next year, and then the path is likely to be relatively gradual," he said.
Weale, regarded as a hawk on the committee, voted against part of the Bank's forward guidance in August.
British government bond prices fell sharply after his remarks.
Weale added that he "couldn't rule out" an earlier move if average earnings pick up more quickly than expected.
Wages in the three months to December 2013 showed their biggest rise since July, up by 1.1 percent compared with the same period in 2012, official data showed on Wednesday, although that was still well below inflation.
"You don't get much more specific forward guidance than that what Martin Weale said," Howard Archer, chief UK and European economist at IHS Global Insight, said.
"Although it really does tie in with what (Bank Governor) Mark Carney implied when presenting the Quarterly Inflation Report and in the inflation forecasts contained in the report."
Weale also noted the next interest rate hike could come around the run-up to the parliamentary election next May, in a rare comment connecting the timing of monetary policy decisions with political events.
"During an election campaign it would obviously be difficult (to change rates) but the election campaign will last for three weeks," he said.
Monetary policy decisions have been independent of the government since 1997.
HOUSE PRICE WORRY
Following Weale's comments, British government bonds underperformed their German equivalent by the greatest amount since last week's inflation report, when the Bank overhauled its forward guidance from focusing on unemployment to a broader range of economic performance.
The spread of the 10-year gilt yield over the 10-year Bund widened more than 2 basis points after the remarks were broadcast, and last stood at 110.5 basis points.
The yield rose to a session high 2.799 percent, before settling back to 2.795 percent, up 5.9 basis points on the day.
Weale also said he was worried house prices were "very elevated".
"It's true that in inflation-adjusted terms they are probably still lower than they were in 2007. But that doesn't tell you very much because no one thought that the level of house prices in 2007 was a source of comfort," he said.
By contrast, David Miles, another Bank policymaker but on the dovish end of the spectrum, on Monday said Britain's housing market was not overheating. He cited lower net mortgage lending than might be expected in a well-functioning market.
Still, minutes from the Bank's last policy meeting published on Wednesday gave no indication of policymakers' differing views on changes to forward guidance.
Concerns about the rapid rise of the housing market prompted the Bank to announce in November that it would scrap the part of its Funding-for-Lending Scheme that supports mortgage lending.
But the market is still underpinned by low interest rates and the government's Help-to-Buy mortgage guarantee programme.
Surveys from mortgage lenders Nationwide and Halifax reported strong gains in house prices in January, up 8.8 percent year-on-year and 7.3 percent respectively.
(Additional reporting by David Milliken; Editing by Alison Williams)
