BOE’s Vlieghe: An early rate hike is possible if there is smooth transition from furlough

Remarks by BOE policymaker, Gertjan Vlieghe

  • However, tightening policy too early would be a much costlier mistake than tightening too late
  • Monetary policy will focus on medium-term outlook rather than transient factors
  • Once furlough scheme ends, we will have better idea of economic slack
  • It will not take years for interest rates increases to start having an effect
  • It will be a communication challenge to keep reminding people that upcoming inflation is likely temporary in nature

The pound is catching a bit of traction from Vlieghe’s comments here as he is signaling a more bullish outlook should labour market slack prove to be less than anticipated once the UK moves on from the existing furlough program.

The headline in particular is what stands out even if there are caveats associated with it.

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