(Bloomberg) -- Michael Saunders, who was one of the most hawkish Bank of England policy makers until he finished his term in August, said he’d now vote to soften the pace of interest rate increases.
The economist said he’d back a quarter-point rise in the key rate to 4.25% if he still sat on the nine-member Monetary Policy Committee, half the rate of the half-point rises pushed through at the past two meetings.
Saunders said the quickest tightening cycle in three decades is starting to have an effect on the economy and that officials have only a little more work to do to constrain inflation.
“Based on the evidence we have so far, and there’s still a couple of weeks to go until the next MPC meeting, I would be voting for a hike probably, but a smaller hike – 25bps – rather than the 50s and the 75 that we’ve had in the last couple of quarters,” Saunders said in an interview with the Bloomberg UK Politics Podcast broadcast on Friday.
“I don’t think we need to do much more than that,” he said.
The BOE has raised its benchmark rate by 390 basis points since late 2021 to 4%, the highest since 2008. Investors have almost fully priced in a quarter-point increase when policy makers finish their next meeting on March 23 and further hikes to 4.75% by the end of September.
Traders pared back bets on further increases after BOE Governor Andrew Bailey expressed “caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more.”
Saunders, now a senior economic adviser at Oxford Economics, added: “We’re getting signs that interest rates are hitting the interest-sensitive sectors of the economy, especially the housing market.”
His comments echo concern expressed by more dovish members of the committee such as Silvana Tenreyro, who has said previous bank rises are already feeding through and that rates may already be too high.
--With assistance from James Woolcock.
©2023 Bloomberg L.P.
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