Mark Carney addresses the Treasury select committee on Tuesday © Reuters

Britain’s economy is likely to be on the rebound in the current quarter after three months of near stagnation to start the year, Bank of England leaders told MPs on Tuesday, signalling that they are still planning on raising interest rates gradually this year.

Mark Carney, the BoE governor, told the Treasury select committee that households were right to think “interest rates are more likely to go up than not, but at a gentle rate”, comments that helped lift the pound nearly 0.5 per cent to $1.35 before it pared gains in late trading.

Sterling has fallen sharply since mid-April, when it approached highs not seen since before the Brexit referendum, amid a softening inflation picture that had analysts questioning whether the central bank would stay on its rate-raising course. Earlier this month, the BoE left rates on hold and gave little guidance on how it would proceed.

Mr Carney said despite the Monetary Policy Committee’s view that the underlying economy had not weakened, the poor first-quarter statistics gave rate-setters some pause for thought. “I felt it was right to get more data,” he said.

Part of Mr Carney’s optimism is a dispute with the Office for National Statistics over whether heavy snow early in the year hurt economic performance in the first quarter. The ONS has ruled out the weather as a factor in the poor start, while Mr Carney said the BoE’s regional agents contacts on the ground had suggested the snow cut between 0.1 to 0.2 percentage points from the first-quarter growth rate.

Even after the BoE took account of snow, “there was a bit of residual softness”, the governor acknowledged, “which is why it made sense to see momentum was re-established [before raising rates], which I expect”.

Other MPC members shared the governor’s view that the weakness in the first quarter was likely to be temporary and growth was expected to rebound to 0.4 per cent in the second quarter without any snow.

Dave Ramsden, deputy governor for markets, who voted against the rate rise in November, said there was a risk households were spending less than the BoE had expected, which might be showing up in recent poor consumer credit data. He said he wanted to wait to see “if consumption will be sustained at 0.2 to 0.3 per cent [quarterly] growth rates or whether it will fall further”.

The committee members were asked whether they agreed with Gertjan Vlieghe, an external MPC member, that the BoE could communicate its intentions more effectively if the rate setters published an expected path of interest rates in future. The three members present said, on balance, they disagreed with Mr Vlieghe, though they said the subject should be kept under review.

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