New BoE policymakers eye case for early action on rates

By David Milliken and Andy Bruce

LONDON (Reuters) - Three Bank of England policymakers set out reasons to favour raising interest rates sooner rather than later on Wednesday, more evidence that opinion at the central bank may be shifting towards a rate rise before the year is out.

New BoE chief economist Andy Haldane and Monetary Policy Committee members Kristin Forbes and Martin Weale all highlighted the costs of keeping rates on hold for too long, though none said rates should increase straight away.

While Weale has long made the case for tighter monetary policy, Haldane and Forbes's remarks are their first on the timing of a rate rise since being appointed to the MPC.

Coming after remarks from BoE Governor Mark Carney last week that markets had underestimated the risk of a rate rise this year, they suggest the balance of views on the Monetary Policy Committee may be shifting along with its personnel.

Haldane attended this month's MPC meeting for the first time, Forbes starts next month and another policymaker, Minouche Shafik, takes up her seat in August, replacing policymakers who are retiring or moving to other roles at the central bank.

Minutes of June's policy meeting, released earlier on Wednesday, showed that a minority of policymakers saw a growing case for raising rates from their record-low 0.5 percent. Haldane predicted outright divisions before long.

"Views may in time differ across the MPC on the preferred lift-off date for interest rates, as you would expect at a difficult-to-predict turning point in the cycle," he said in his first speech on monetary policy as chief economist.

Using a lengthy cricketing analogy, he said he favoured playing on the front foot - a stance that would err towards acting early rather than waiting to get more information on the path of an incoming ball, or the economy.

"Playing late relies on having an uncannily good eye and strong nerve. It runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward," he said.

FORBES: "MUCH TO LEARN"

Forbes - an American academic who formerly advised U.S. President George W. Bush - eschewed British sporting metaphors in her first appearance before the parliamentary committee which supervises the BoE, but made a similar point to Haldane.

"Delaying any adjustments in order to gather more information could increase the risk that any subsequent adjustments in monetary policy would need to occur more abruptly," she said.

Forbes has never lived in Britain before and said she still had "much to learn" about Britain's economy during a hearing in which policymakers queried whether she had relevant experience.

Forbes defended her academic background - which centres on international capital flows - but said she would not live full-time in Britain for the first year of her three-year term as she could not find the right private school for her children and her husband did not want to move straight away.

External MPC positions such as Forbes's, which pay 135,751 pounds a year, are technically only for three days a week, but most members treat them as full-time roles. Forbes said she would continue some teaching at the Massachusetts Institute of Technology, where she is a professor.

Carney, a Canadian, receives an extra 250,000 pounds a year on top of his salary to house his family in London.

MARKET MULLS MINUTES

The minutes from the MPC's June 4-5 meeting showed that Carney's view that markets had misjudged the chance of a rate rise later this year was shared more widely on the committee.

Members were concerned that markets had underestimated the chances that stronger-than-expected growth in the second half of 2014 will eat up spare capacity in the economy.

"In that context, the relatively low probability attached to a Bank Rate increase this year implied by some financial market prices was somewhat surprising," the minutes said.

Sterling hit a five-year high after Carney made similar remarks last week, but the British currency inched lower on Wednesday and short-dated gilt yields fell as investors digested the minutes. Strategists said they offered no clear advance on earlier comments from BoE policymakers.

All members of the MPC voted to keep interest rates on hold at a record-low 0.5 percent. A small minority of economists had expected one BoE policymaker to vote for a rate rise.

"Assessing how the interest rate landscape may unfold remains uncertain," said Philip Shaw, chief economist at Investec. "Further indications of a rapid tightening in labour market conditions could be a deciding factor."

Weale said after the minutes that the amount of slack in the labour market may be smaller than the BoE forecast last month.

That could cause unemployment to fall faster than the BoE currently forecasts, putting upward pressure on wages and requiring tighter monetary policy, he said.

The BoE said its staff maintained their forecast for 0.9 percent economic growth during the current quarter and now saw upside risks to their forecast of 0.7 percent for the third quarter of 2014, due to strong survey data.

But Britain does not face immediate inflation pressures, with the headline rate of consumer price inflation at a 4 1/2-year low of 1.5 percent in May and wage growth even slower.

(Editing by Larry King)