Bank of England deputy governor says focus on date of rate rise is misleading

Nemat Shafik defended the Bank of England’s reluctance to name specific dates for any rate rises.
Nemat Shafik defended the Bank of England’s reluctance to name specific dates for any rate rises. Photograph: François Lenoir/Reuters

Knowing precisely when interest rates will rise is not what really matters, a seniorBank of England official has said, as she insisted its system of “forward guidance” was not failing.

The Bank’s latest forecast signalled the cost of borrowing may not increase for a year, despite the governor, Mark Carney, previously saying the decision would come into “sharper relief” by now.

It suggested that while the UK economy was doing well enough to justify moving away from the record low rate of 0.5% – global instability meant it was not the right time.

The deputy governor defended the Bank’s failure to give any clearer signal as to when that would change and rejected charges it was failing to give promised advance notice.

“No, I don’t think that’s the case. Isn’t it better that the Bank of England give the public and the markets a sense of what our best collective judgment is of what is going to happen in the economy than to catch people by surprise?” Nemat Shafik told BBC Radio 4’s Today programme.

“The consistent message that we have given is that future interest rate rises will be limited and gradual and I think everybody on the monetary policy committee signs up to that guidance and so far that has proven to be right. Even though I understand why people are concerned about the actual date of the first rate rise, what really matters to the economy is the path, and the path will be limited and gradual.

“The report showed that a gently rising path for interest rates would result in the economy moving towards full capacity and inflation coming back to target within a couple of years. The UK economy is still doing quite well: we are growing above trend; real household incomes are growing faster than at any time since the crisis; consumer confidence is strong and investment intentions are robust. But the outlook for the rest of the world is more sombre.”

Shafik also suggested there was no case at present for the policy of “people’s quantitative easing”, advocated by Jeremy Corbyn.

The Labour leader has called for a big boost in public spending on infrastructure, financed by the Bank of England “printing money”, saying that the last round of QE was used to “prop up” failing banks.

Shafik said: “The first round of QE that we did was for the people, it actually raised UK GDP by about 2.5% by our estimates; it brought inflation back up. I think that had huge benefits for the people of the UK. I think at the moment the issue of the day isn’t more QE, the issue is when are we going to tighten. That is what we are focused on at the moment.”

Shafik, the first woman to take the role, did not rule out an ambition to succeed Carney. “I think it’s great that there are more women in senior positions in every area of public life,” she said.

Report on RBS treatment of small-business customers delayed

MPs raised the cases of constituents who had been concerned about their treatment by the bank. Photograph: Philip Toscano/PA

A report into the way Royal Bank of Scotland treated its small-business customers may not be published until the new year, MPs were told on Thursday. During a lengthy backbench debate on the future of the bailed-out bank, the Conservative MP Guto Bebb said a report commissioned by the Financial Conduct Authority into allegations that RBS pushed customers to the brink to make profits would be pushed into 2016.

Bebb, who campaigns for small businesses, said that “members would be disappointed to hear that at a meeting with RBS this morning, it was confirmed that it is not expecting the FCA report until the new year, so the hope of having something in our Christmas stocking has been taken away”.

RBS admitted that the report into its now defunct global restructuring group was one of the barriers it faced to full recovery when it published its third-quarter results last week. The regulator commissioned the report after accusations were raised by businessman Lawrence Tomlinson.

During the sparsely attended debate, MPs raised the cases of constituents who had been concerned about their treatment by the bank. But the debate also focused on whether the government should continue to sell off its stake in the bank after finally beginning the process of reducing its holding in the summer. As a result of the sale – at a £1bn loss – the government stake has fallen to 74% from the 79% it stood at following the 2008 taxpayer bailout.

Kate Osamor, a Labour MP, called on the government to consider suspending the further sale of its shares in the RBS and to look at alternative options. She said there should also be a review of the UK’s financial sector and that the government should look at the case for establishing new models of banking, including regional banks.

Leading the debate, she said: “Reforming RBS into a network of local banks would increase financial stability, help decentralise the economy, boost lending for small and medium-sized enterprises, maintain local branch lending, and help restore faith in British banking.”