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Rates may need to increase sooner than expected - Forbes

Rates may need to increase sooner than expected - Forbes

(18 August 2015 – Britain) Bank of England (BOE) policymaker Kristin Forbes has warned that waiting too long to raise interest rates could hurt the economy.

"Waiting too long would risk undermining the recovery - especially if interest rates then need to be increased faster than the gradual path which we expect," she wrote in a column in The Telegraph.

As a Monetary Policy Committee (MPC) member, Forbes said a rate hike took between one and two years before the full effect was seen.

Due to this, rates need to rise “well before” inflation hit the central bank’s 2 percent target, Forbes said.

She said in the column that keeping interest rates at their current historic low f 0.5 percent risked creating distortions, especially as the British Pound gains strength while recent falls in energy and commodity prices would keep inflation low for longer.

"There is no need to act before we are confident that inflation is heading back toward 2 percent within about two years as expected," she said.

At the start of August MPC members voted 8-1 to leave rates on hold.

BOE governor Mark Carney has indicated previously that when rates do start to rise it will be gradual.

There is still no indication when any rate rises will begin.

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