Rate rise should not be delayed any longer: BoE's Forbes

Economies have "recovered enough" that a gradual reduction in monetary stimulus is now warranted, according to the MPC's Kristin Forbes, who voted for a rate rise in this month's meeting.

Related topics:  Finance News
Rozi Jones
23rd June 2017
bank of england boe
"We should be less hesitant to adjust interest rates – in either direction – as the situation changes."

Speaking at the London Business School yesterday, Forbes said the UK is showing signs of being “behind the curve” in terms of adjusting monetary policy and that the “lift-off” of UK interest rates should not be delayed any longer.

Citing reasons, Forbes argued that the longer (or greater amount by which) this trend rate of inflation moves away from target, "the more difficult it will be to return to target".

The Bank of England's latest Inflation Report predicted that inflation would hit 3% and remain above 2% for at least three years. This, Forbes says, suggests "some urgency" in tightening monetary policy.

She added that many of the factors that have justified keeping interest rates at emergency levels over the past few years have "become less potent".

Forbes continued: "Granted, there are changes in the monetary policy process that may still slow this launch, especially given concerns about the broader evolution of the economy as it adjusts to new arrangements with its most important trading partner. These concerns reinforce the case to make any adjustments in monetary policy limited and gradual.

"For me, however, these risks also highlight the need to make monetary policy more nimble – both today and in the future. We should be less hesitant to adjust interest rates – in either direction – as the situation changes.

"Engineers are quick to adjust a launch date if there is a technical concern or if the weather shifts. We should do the same. Otherwise, the UK economy may face greater challenges than parents face when their thirty-something fails to launch from their home."

Bank of England chief economist, Andy Haldane, said earlier this week that a tightening of monetary policy will be needed "relatively soon", stating that the process "would be prudent moving into the second half of the year".

Haldane agreed that if policy is tightened 'too late', "this could result in a much steeper path of rate rises later on".

However Bank of England governor Mark Carney said this week that "now is not yet the time" to begin raising interest rates, citing mixed signals on consumer spending and business investment as well as "anaemic wage growth".

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