In an interview with the Financial Times, Martin Weale said he thought even a gradual rise in interest rates could see borrowing costs rise more quickly than the markets are expecting - potentially by up to one percentage point a year.
Mr Weale said his definition of a gradual rate rise would involve the bank tightening by “no more than” 25 basis points a quarter.
The bank, and Governor Mark Carney, have repeatedly said that rate rises will be 'gradual and limited' when the economy becomes strong enough to make them necessary. But Mr Weale warned that if the pace was to be gradual, it should not wait too long before making a rise.
Weale said:
“If you want to have baby steps you do have to start sooner. The question is: how close are we getting to ‘soon’? Of course we can never be sure, but the economy . . . has sustained fairly rapid growth in demand.”
“So I’m having to ask the question – and the answer is less definite than it was six months ago – ‘where do I think the interest rate should be at the moment?’ ”
He told the FT: "We can wait a bit longer. How long that ‘bit longer’ will be I’m not sure, but the best judgment I can have is that it’s not so urgent it needs doing now.”
“What I’m increasingly going to have to do as more capacity is used up is balance off my sense of the risk of waiting too long versus acting too soon. I very much can see risks both ways and ‘becoming more balanced’ means an increasing sense of having to balance and judge those risks.”
