Bank of England's Michael Saunders: An interest rate rise would be helpful

 
Lynsey Barber
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MPC member Michael Saunders is in favour of a rate hike (Source: Getty)

One of two dissenters on the Bank of England's (BoE) interest rate-setting committee has said that a rise would be helpful.

"Our foot no longer needs to be quite so firmly on the accelerator in my view," said monetary policy committee (MPC) member Michael Saunders in a speech in Wales on Thursday morning.

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"A modest rise in rates would help ensure a sustainable return of inflation to target over time."

Outlining his reason for a rate rise, he suggested it was better for the BoE to act sooner rather than later. He said:

"In the exceptional circumstances since the EU referendum, the MPC has sought the appropriate tradeoff between above-target inflation and below-potential output. The terms of that tradeoff have shifted markedly in recent quarters. Inflation has risen well above target, while spare capacity in the economy has been absorbed faster than expected. The jobless rate is now slightly below our estimate of equilibrium."

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"The prospective tradeoff is beyond my limits of tolerance, with the likelihood of an early elimination of slack and an extended period of above-target inflation."

Saunders and Ian McCafferty voted in favour of a rise at the last meeting in August. Six fellow members voted to leave its key interest rate unchanged at the historically low 0.25 per cent.

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