Bank's deputy governor suggests interest rates should stay on hold

Bank of England deputy governor Jon Cunliffe has signalled interest rates should stay on hold as households face an income squeeze amid a deepening split between policymakers.

Mr Cunliffe appeared to back Bank governor Mark Carney, who recently said "now is not yet the time" to hike rates despite growing dissent on the Monetary Policy Committee (MPC).

In an interview with BBC's Radio 5 Live, Mr Cunliffe said he wanted to see if Britain's growing export trade and increases in business investment could offset a slowdown in consumer spending before increasing rates from their record low of 0.25%.

He said: "(Consumer spending) is slowing as households' real incomes are squeezed by higher inflation, we expect some of that slowing to be offset by growth in business investment, growth in exports. And I want to see how that plays out."

"(We) do have to look at what's happening to domestic inflation pressure, and I think that on the data we have at the moment, gives us a bit of time to see how this evolves," he added.

His comments come after Andy Haldane, the Bank's chief economist, surprised markets last week by signalling that he was poised to vote for a rate hike in the second half of the year if growth remains stable.

Three out of eight MPC members unexpectedly voted to raise rates to 0.5% earlier this month due to concerns over soaring inflation, raising the spectre of a rise in borrowing costs.

The Bank warned inflation was set to surge past 3% this autumn, further above its 2% target and higher than its original forecast.

Rising prices are far outstripping wage growth, which has started to see consumers rein in their spending.

While the Bank would normally raise rates to counter rising inflation, it faces a difficult balancing act amid Brexit uncertainty and slowing economic growth.

Mr Cunliffe said above-target inflation was "not a comfortable place" for the MPC.

But he said the Bank must consider how much of the inflation overshoot was down to domestic pressures rather than the impact of the Brexit-hit pound.

Most economists think the Bank will vote to hold rates for the next few months in spite of the dissent on the MPC, although the Bank is seen as paving the way for a rise.

The Bank announced in its Financial Stability report on Tuesday that it was scrapping one of the emergency policies brought in after the Brexit vote, while warning over a consumer borrowing binge.

It told banks to put aside another £11.4 billion over the next 18 months by raising a capital buffer rate, which had been slashed to zero last summer to unlock lending to the economy.

Mr Carney also warned lenders against "forgetting the lessons of the past" as the Bank signalled lending requirements were becoming lax in some areas, which could leave the sector exposed to surging consumer borrowing on credit cards and car finance deals.