GUILDFORD, England (Reuters) - Bank of England interest-rate setter Silvana Tenreyro said on Monday that much of the weakness in Britain’s economy in early 2018 would probably prove temporary but that the timing of when rates would next go up was an open question.
Tenreyro, who voted last month to keep rates on hold along with a majority of her fellow policymakers, said she expected borrowing costs to rise gradually over the next three years, echoing the BoE’s central message.
The inflationary impact of the slump in sterling after the 2016 Brexit vote was probably fading more quickly than the BoE had expected. But the sharp fall in unemployment in Britain would push up wages, Tenreyro said in a speech.
“While I anticipate that a few rate rises will be needed, the timing of those rate rises is an open question,” she said.
The BoE raised interest rates in November for the first time in more than a decade.
It had been expected to lift them again to 0.75 percent in May, even as the economy faced uncertainty around Britain’s departure from the European Union next year.
But policymakers adopted a wait-and-see approach after data showed Britain’s economy almost flat-lined in early 2018, hit at least in part by heavy snowfalls.
Tenreyro said much of the weakness was likely to prove short-lived but there was a chance that the slowdown was caused by something longer-lasting than the cold weather.
“I think that much of the downside Q1 GDP news is likely to be erratic, but it does increase the possibility of some underlying weakness in demand,” she said.
Most economists polled by Reuters last month expected the BoE would wait until August, when it next updates its economic forecasts, to deliver another increase in interest rates.
Summing up her position at the BoE’s policy meeting in May, Tenreyro said she believed the costs of waiting a short period for more information about the economy were small.
“And because unusually, we are likely to get a significantly clearer picture of the underlying strength of domestic demand quite soon, there were benefits to leaving policy unchanged,” Tenreyro said.
Writing by William Schomberg; Editing by Catherine Evans and Kevin Liffey