BoE could raise interest rates sooner than expected, says MPC's Forbes
Bank of England (BoE) policymaker Kristin Forbes said the central bank could raise interest rates sooner than expected.
Forbes, a member of the Monetary Policy Committee (MPC), said she believed there was a "higher probability" of scenarios in which inflation falls in the short-term future before rebounding more strongly than expected.
"These scenarios, if they occur, would imply an earlier increase in interest rates than currently expected, especially in order to ensure that any subsequent interest rate increases are slow and gradual," Forbes said in a speech published on Monday.
Interest rates have been kept at a record low since 2009 and markets do not believe the BoE will change its policy until midway through 2016.
Forbes added that inflation could fall further over the next few months, but cited the tumbling oil prices and sustained growth in the United States were likely to boost the UK’s economy, making a rise in interest rates almost a necessity.
However, Forbes warned of the risk that inflation could rebound much faster than expected if Britain was to absorb the impact of the strong pound more quickly than predicted by the BoE.
If that was to happen, inflation would fall sharply in the immediate future but "by the end of 2016 it would be higher than in the baseline (scenario) and above the 2% inflation target", Forbes said.
The MPC member added that the BoE will be monitoring the Federal Reserve’s actions closely, given analysts expected to hike interest rates as early as June.
"Whenever one large developed country starts to raise rates, that is going to be a wake-up call to investors and markets that at least in some economies the era of very low rates, very cheap credit, is starting to come to an end," Forbes was quoted as saying by The Wall Street Journal on Monday.