UK rate rises to be gradual, limited - BoE's Broadbent
SYDNEY (Reuters) - A top official at the Bank of England sees a case for earlier increase in interest rates but emphasised that any tightening cycle would be limited and gradual.
In a lengthy interview with Bloomberg News, BoE Deputy Governor Ben Broadbent also said it was possible the pound was overvalued, but only because the UK economy was outperforming many of its peers.
Broadbent said markets were obsessing too much on when the first rise in interest rates might come and missing the important message that any tightening would be gradual.
"The real message we're trying to get across is that for other reasons to do with what’s going on in the global economy, investment, credit and risk premia, the level of interest rates that's likely to be necessary to meet our objectives and the gradient of our path to get there, are likely to be lower than the previous expansions," said Broadbent.
"It's very likely to be limited and gradual."
Asked whether the cautious approach meant the process should start earlier, Broadbent concurred.
“There's an argument for that, possibly, amongst all the other arguments, to a degree, yes, to a degree," he said.
Equally, he noted that high levels of household debt in Britain added to the case to be careful when raising rates.
"It's one of the reasons for expecting why you might want to go more gradually," he said. "If you’re more uncertain about the impact of a rate change you’d tend to go a little more gingerly."
Asked if he agreed with the IMF view that the pound may be overvalued by more than 10 percent, Broadbent said it was "quite possible."
However, he emphasised that it was not the level of the exchange rates that worried him but the sluggishness of economic growth in Britain's major trading partners that was depressing their currencies.
"It's not the exchange rate I'm unrelaxed about, it's the rest of the world, that is the message I'm trying to get across," he said. "If the rest of the world were to accelerate, if Europe were to accelerate, I would fully expect sterling to weaken."
(Reporting by Wayne Cole; Editing by Shri Navaratnam)
