The Bank of England’s chief economist, Andy Haldane, has said the UK is nearing the time it will need to raise interest rates to keep inflation pressures in check.
Haldane wrote in The Sun on Saturday that “a lost decade” of wage growth is coming to an end ahead of “steady if not spectacular” growth in 2019.
“For me personally, the time is nearing when a small rise in rates would be prudent to nip any inflationary risks in the bud,” he said.
“Acting early with a rate rise acts as insurance against the need for faster and larger rises in interest rates in future.”
Last year, Haldane was one of two current members on the Monetary Policy Committee that voted for a rate raise ahead of the unanimous decision to increase interest from 0.5 per cent to 0.75 per cent.
He reaffirmed the Bank of England’s desire to raise rates in a gradual way, but financial markets believe rates are more likely to be cut than increased in the next year amid Brexit uncertainty.
The potential for further delays to the deal or a no deal scenario are key causes for concern, while the US-China trade war has also softened the global economy.
Markets also expect the US Federal Reserve to cut rates two or three times this year.
Haldane said it would be arrogant to bet against market predictions, but told The Sun that inflation pressures would probably increase once the Brexit impasse was resolve.
“With spending by both households and companies then picking up, that could put at risk the Bank of England’s 2% inflation target – with upward pressure on prices eating into pay and savings,” he wrote.
“Those are the circumstances in which the Bank’s Monetary Policy Committee, on which I sit, would need to consider the case for a further modest rise in interest rates.”