LONDON The Bank of England's chief economist, Andrew Haldane, said on Friday it would be risky to raise interest rates too hastily and that he was comfortable with the BoE's recent shift to a neutral stance on what its next monetary policy move should be.
Britain's central bank is grappling with the effect of a sharp fall in sterling since June's vote to leave the European Union, which Haldane said was likely to push up inflation and also hurt growth over the coming year.
Last month the BoE dropped its plan to cut rates again as the economy coped better than expected with the Brexit vote.
"That ... now leaves me comfortable with the current stance of monetary policy, with no bias on the direction of the next move in interest rates," Haldane said in a speech at an iron and steel research centre in northeast England.
Very few economists expect the BoE to raise rates in the foreseeable future and Haldane suggested he would take a lot of persuading to back a hike, in part because the very low level of borrowing costs gave the BoE little room to reverse course and cut them materially if a rate hike turned out to be a mistake.
"My personal view is that this provides grounds for not proceeding too hastily with any tightening of the monetary policy stance," he said.
British government bond futures briefly spiked to a day's high after the comments from Haldane, who has previously been one of the BoE's more frequent advocates of stimulus.
Another BoE policymaker, Gertjan Vlieghe, said last Monday he believed it was better to act with caution about any tightening of monetary policy, and BoE Governor Mark Carney is due to give a speech in Liverpool on Monday.
Haldane said he expected sterling's fall of nearly 20 percent over the past year to have a significant effect on growth and inflation next year.
Consumer price inflation is below the BoE's 2 percent target at 0.9 percent. Haldane said a recent increase in medium-term inflation expectations in financial markets to their levels of early 2016 was "benign and helpful".
But a further large, sustained, rise would not be, he said.
The impact next year of higher inflation on growth might be underestimated, he added. The BoE expects growth will slow to 1.4 percent next year from 2.2 percent this year.
"There is still a material chance that growth could underperform relative to expectations during the course of next year, for example, if the squeeze on household incomes prompts a larger adjustment in household spending," he said.
However, if this happened there was a risk the BoE would be unable to cut rates as far as it would like, Haldane said.
(Reporting by David Milliken; Editing by William Schomberg/Jeremy Gaunt)