(Kitco News) - Bank of England's (BoE) Saunders went on the offensive in a speech today after announcing he will depart the central bank after the August meeting. Saunders was a dissenter in the last two meetings voting for more significant rate increases than the central bank managed to agree on. In this speech, Saunders also stated he could see the bank's rate hitting 2% next year (currently at 1.25%). He said "With excess demand and elevated inflation, 'too little, too late' would increase the likelihood that recent trends in underlying pay growth, longer-term inflation expectations, and firms' pricing strategies become more firmly embedded,"
Saunders added that there is some way to go when it comes to the tightening cycles in his view. Saunders added that it is not correct to say the neutral rate is 1%, he believes it's higher. Looking at the future he noted GDP growth looks like it slowed in Q2 but there was a glimmer of hope as he noted that Q2 was not as weak as the headline figure suggests. When looking at the government vs the central bank Saunders said that any major tax cuts could mean higher rates. He also added that the U.K. government does not set the direction of travel for monetary policy and this is fundamental.
Saunders will be replaced on the Bank's nine-strong MPC by Swati Dhingra of the London School of Economics, who joins next month.
In terms of a market reaction to Saunders, GBP/USD has been trading 0.90% higher in the session. Although there has been some general greenback weakness GBP has been the strongest major currency at the start of the week.
