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Don’t bank on ultra-low UK interest rates for too long: Ex-BOE member

Markets are wrong to assume the Bank of England will keep base interest rates at an "extraordinarily low level for an extended period," a former member of the bank's decision-making council told CNBC on Thursday.

David Miles spoke to CNBC shortly before the Bank of England gave its latest monetary policy update, having announced a wave of stimulatory measures in August to boost the economy after the shock of the Brexit vote.

On Thursday, the Bank of England opted to hold base interest rates at record lows and to maintain the size of its newly enlarged bond-buying program. The bank's Monetary Policy Committee (MPC) voted unanimously in September to hold the base rate at 0.25 percent, to which it was cut in August. It also voted unanimously to maintain the size of its corporate bonds purchases at up to £10 billion ($13.2 billion) and government bond purchases at £435 billion.

"Keeping interest rates at an extraordinary low level for an extended period is not a great place to be. I don't think that is where we are likely to be in the U.K.," Miles told CNBC.


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Miles, who was an MPC member between 2009 and 2015, said markets were implicitly pricing in rates remaining below 0.5 percent for the next four or five years.

"My own view is that is not actually a very likely outcome for the U.K., even if we get weak growth," he told CNBC.

U.K. economic data has improved since the bank introduced the large batch of stimulus measures last month. Official retails sales data for August came in stronger than expected on Thursday and last month's Markit/CIPS U.K. services Purchasing Managers Index (PMI) rebounded sharply from July's 89-month low. However, it is unclear how long the upbeat data trend will last.

The U.K. economy has also been boosted by the weaker pound, which slumped after the vote to leave the European Union on June 23. At $1.32 to the pound, sterling is down around 12 percent from the peak it hit just prior the referendum.

"Sterling has been trading very well, it has been very stable, but actually I wouldn't attribute so much of that to the Bank of England. Carney has been, in the last week or so, trying to recover a bit of credibility and suggest that it is down to their messages. But the market view is that is a little tenuous," Richard de Meo, founder of Foenix Partners, told CNBC on Thursday.

In August, the bank announced that its bond-purchasing program would be extended to up to £10 billion ($13.2 billion) of corporate bonds, with purchases of U.K. government bonds extended to £60 billion.

The Bank of England has published a list of senior secured corporate bonds that are eligible for purchase. Issuers include FTSE 100-listed AstraZeneca, BAE Systems, BAT, British Telecom, Centric and GlaxoSmithKline. The Dow companies with eligible bonds are McDonald's, General Electric, IBM, Pfizer, Procter & Gamble, Apple and Wal-Mart.

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