Do not leave rise in Bank Rate for too late, MPC's McCafferty says
The gradual return of the so-called ‘natural’ interest rate to pre-crisis levels as the economy recovers means the lift-off in Bank Rate should not be left for “too late”, the most hawkish member of the Monetary Policy Committee believes.
In a speech given at Bloomberg’s headquarters in the City, Ian McCafferty said his calls for the first interest rate hike were based on how he saw the balance of risks around inflation come 2017.
For him, a key element to take into account was the gradual recovery in the natural level for interest rates or what he terms the neutral rate of interest.
"If we on the MPC are to achieve our ambition of raising rates only gradually, so as to minimise the disruption to households and businesses of a normalisation of policy after a long period in which interest rates have been at historic lows, we need to avoid getting ‘behind the curve’ with respect to the neutral rate. And for me, that provides an additional justification not to leave the start date for lift off too late,” the central banker said.