Bank of England policy maker says interest rates need to rise now

27th October 2014

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The Bank of England needs to raise interest rates now regardless of any signs of an easing in the economy, a Monetary Policy Committee (MPC) member has claimed.

Ian McCafferty, a member of the nine-strong Monetary Policy Committee (MPC), which votes on the direction on interest rates every month, has been calling for rise since August.

Writing in The Sunday Times, he said: “Since mid-2013, the UK’s GDP growth has been the strongest in the G7, employment has risen by 735,000, and the unemployment rate has come down from 7.7%to 6%. The economy is getting back to normal, and with that comes a need for a gradual normalisation in interest rates — the real issue for debate is exactly when that needs to start.”

The Bank of England’s MPC slashed interest rates back to their historic low of 0.5% in March 2009, in a bid to prop up the economy in the midst of the financial crisis.

While Britain’s economic figures have been gradually improving, last week official figures showed that growth slowed down to 0.7% in the three months to the end of September; down from 0.9% in the second quarter of the year.

But economists had been anticipating a pull back in progress in the second half of the year, primarily on the back of weaker trading numbers in the private sector.

However given the economy has been getting itself back on track following the recession McCafferty believes that the cost of borrowing needs to follow.

He added: “They {interest rates} are likely to stay well below pre-crisis levels for some considerable time, but starting to raise Bank rate now makes it more likely that the increase required over coming years to deliver our inflation target can be kept gradual and limited.

“Ensuring that we act in good time and move rates slowly, to allow consumers and businesses to adapt with minimum disruption, is, I believe, the best way of supporting and sustaining the economic expansion now under way.”

The consensus among economists is that rates will eventually start to move up sometime in the middle of 2015

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