"A rate hike that turns out to be premature is a more serious mistake than one that turns out to be somewhat late"
Speaking at Bloomberg Headquarters today, the external MPC member said that given the low level of interest rates currently, "I do not think the MPC has as much room to ease as to tighten".
Vlieghe believes that "given the hit to real income from a mix of subdued wage growth and rising inflation, I think the slowdown is more likely to intensify than fade away".
He admitted that based on the early economic indicators after the referendum, it was "an easy decision" to decide that more stimulus was warranted and thought that further stimulus would be needed.
Vlieghe noted the acceleration in consumer credit growth, stating that if it continues, he "would see it as a sign that monetary policy is too loose".
However in the absence of a consumption slowdown, he said there would be less justification for tolerating above-target inflation.
He continued: "The average consumer credit flow of past three months has fallen back, and has been the weakest for over a year. So perhaps a slowdown in credit growth is already underway. But I will be alert to any signs of re-acceleration."
Vlieghe concluded: "A cautious strategy on interest rates is warranted, but only for as long as there is slack in the economy and underlying inflation pressures remain subdued. For now, taking together indicators of wages and inflation expectations, that seems to be the case. If, on the other hand, I see signs that inflationary pressures are spreading beyond just exchange-rate pass-through, or I see a re-acceleration of indicators related to household spending and credit, that would be my cue that a slightly higher level of Bank Rate is warranted."
