Interest rates in the UK could rise sooner than markets expect, a top Bank of England policymaker has said.
Traders have pushed back expectations of interest rates rising from a record low of 0.5% because inflation has come down sharply in recent months. A hike is not priced in until halfway through next year.
But there were risks that inflation could rebound sooner than thought, pushing rates up earlier than expected, one of the Bank’s nine rate-setters, Kristin Forbes, said in a speech published on Monday.
“If the risks that I’m focusing on to our last forecasts come through, I think there is a chance that inflation will pick up faster than people had been expecting in the medium term, which then would most likely merit an increase in interest rates sooner than people are currently expecting,” Forbes told the Wall Street Journal.
The Bank also released a speech on Monday that American economist Forbes had given last Thursday, where she made similar warnings.
She said inflation, currently at a record low of 0.5%, may overshoot the government-set target of 2.0% before the end of 2016. The Bank has a remit to set interest rates so that inflation can be brought back to target within a “reasonable time period”.
Forbes’ remarks follow comments from Bank of England governor Mark Carney last week that prices would start to rise in the next two years to bring the inflation rate back to target.
via The Guardian
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