The Bank of England should raise interest rates now, a hawkish member of the monetary policy committee (MPC) said today in the latest salvo in the public battle over monetary policy.
Ian McCafferty, an external member of the MPC appointed by the Treasury, said the relative resilience of the UK economy in the year since the Brexit vote coupled with rising inflation meant “there is a need for change”.
Speaking to the Daily Post in North Wales, McCafferty said conditions had changed since the last monetary policy move in August.
He said: "Since then the economy has not slowed to the extent we feared it would last summer and meanwhile inflation has been high."
He added: "I think this would be justified and would be the prudent thing to do at this stage".
McCafferty voted to undo the emergency rate cut after the Brexit vote at the June MPC meeting along with two other colleagues. Since then Bank of England chief economist Andy Haldane has added his weight to the hawks, raising the prospect of a tie on the committee, which is still a member short.
McCafferty declined to comment on the other members but acknowledged the monetary policy decision was not straightforward.
The volatile political situation in the UK in the last 18 months has added to “uncertainty”, he said, but businesses are nevertheless showing some signs of confidence.
McCafferty, a former chief economic adviser for the Confederation of British Industry (CBI), pointed to robust business sentiment (including in CBI surveys) despite some evidence of firms holding back on big investments.
"While businesses are mindful about what is happening business sentiment remains high,” he said. “I think the uncertainty has affected big investment decisions but businesses are continuing to take on staff."