Speaking to The Telegraph, Forbes said that an increase in interest rates generally takes between one to two years to have its maximum impact. She said that maintaining interest rates at current low levels during an expansion therefore risks creating distortions.
As a result, Forbes believes that interest rates will need to be increased well before inflation hits its 2% target. However she stressed that with inflation starting from zero, the MPC must be confident that inflation is heading back toward 2% within about two years before it acts.
She added that some key indicators that she'll watching are domestically generated inflation, core inflation, and the pass-through from sterling’s recent appreciation to prices. GDP recently accelerated to 0.7% – around its long-run average before the financial crisis.
At its latest meeting, the MPC voted by a majority of 8-1 to maintain Bank Rate at 0.5%, the first time in months the decision has been split. However it admitted that there remains "considerable uncertainty" around inflation returning to its 2% target. The Bank of England has forecast Bank Rate to rise from early 2016 before reaching 1.7% by 2018 Q3.
