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LONDON (Reuters) – The first two Bank of England policymakers to make speeches in 2018 have highlighted the debate within the British central bank about when interest rates might rise above their financial-crisis emergency levels.

Two months after the BoE raised borrowing costs for the first time in more than a decade, Silvana Tenreyro and Michael Saunders struck contrasting tones about the outlook for inflation in Britain’s Brexit-bound economy.

Tenreyro said in a speech on Monday that the BoE had “ample time” before raising rates again. And she added that productivity growth might be stronger than expected, potentially easing inflation pressure and reducing the speed of rate hikes ahead.

Sounding more urgent about the need for higher borrowing costs, Saunders said on Wednesday that unemployment was likely to fall to a greater extent than the BoE expected which would push pay growth in 2018 to near its fastest rate since the financial crisis.

At the same time, Saunders said the rate at which Britain’s economy can grow without generating excess inflation could be below the BoE’s estimate of 1.5 percent a year, thanks in part to the effects of Brexit.

In her speech, Tenreyro said she backed the central bank’s view that only a couple of rate increases were likely to be needed over the next three years.

Saunders limited himself to the BoE’s less specific message that any increases would be “limited and gradual”.

“While he gives no clear indication of doing so, these comments raise the possibility of Saunders dissenting in favour of raising rates again at one of the next two meetings,” JP Morgan economist Allan Monks said in a note to clients.

Saunders, a former Citi economist, started voting to raise rates in June last year, five months before a majority of Monetary Policy Committee’s nine members – including Tenreyro – voted to reverse a 25-basis-point cut made shortly after the Brexit vote in 2016.

That took borrowing costs back to 0.50 percent, their level for most of the past decade.

Most investors now expect Governor Mark Carney and the rest of the nine-strong Monetary Policy Committee will raise rates again only in late 2018. But a minority of economists say they think a rate increase is likely to come in May.

Philip Shaw, an economist with Investec, a bank and asset management firm, said the BoE might raise rates twice in 2018, starting in May, and once more in 2019.

However, there were big question marks about the speed of growth in the economy this year, as Brexit approaches, and about the chance of a productivity pickup, he said.

“Both of these points have a large degree of uncertainty attached to them and the outlook will be very dependent on the assessments given in the Inflation Report in February,” Shaw said.

The BoE is due to update its forecasts for the economy alongside its next interest rate announcement on Feb. 8.

Source: UK Reuters

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