LONDON, Dec 1: Any signs that inflation expectations were coming unstuck would suggest a need for higher interest rates than otherwise, Bank of England Monetary Policy Committee member Andrew Large said on Thursday. While so far there have been no signs that this is happening, Large, who steps down as BoE deputy governor after the January MPC meeting, said in remarks to a London business school that it is still too early to relax about the subject.

The key issue for me is the impact of oil prices on inflation expectations. Any signs of expectations becoming dislodged would be a signal that policy might need to be tighter than otherwise, said Large.

Large is widely perceived as one of the hawks on the nine-member MPC and so his remarks are unlikely to come as a surprise to markets which were focused on Thursday on news of the sharpest fall in retail sales in at least 22 years.

A majority of analysts are still of the view that the next move in UK rates, currently at 4.5 per cent, is likely to be down although policymakers have signalled in recent weeks that they are in no hurry to move borrowing costs for now.

Large, who is the BoE’s deputy governor for financial stability, also expressed concern about debt levels and leverage, although he said he took comfort in the fact the rates of increase in domestic debt have slowed recently.

As far as debt levels are concerned, for me the key issue for monetary policy is that the more capital gearing or leverage increases the greater the vulnerability to shocks and the consequent adjustment to consumption behaviour, he said.

Household debt passed the 1 trillion pound mark last summer and many households have taken on larger amounts of debt than they have in the past, partly as a result of a more than doubling in average house prices since the late 1990s.

He noted that the ratio of household debt to disposable income is now over 150 per cent, up from 100 per cent over the same period.

Large also devoted some of his remarks to pensions, just a day after a landmark report recommended that Britons should work longer and save more to stave off a pensions crisis based on an ageing population and a 57 billion pounds shortfall in savings.

He said that German policymakers have wondered if the disposition to save there may partly explain sluggish demand and perhaps may also be the case in Britain where household spending has slowed sharply over the past year.

Here in the UK we have wondered if this could have been one factor in the recent consumption slowdown, said Large. —Reuters