Expect rate hikes in spring 2015, says Bank’s Weale
Households should prepare themselves for an increase in interest rates "next spring", the Bank of England's Martin Weale has told Sky News.
Weale, an external member of the Bank's monetary policy committee, said: "I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year and then the path is likely to be relatively gradual."
After introducing Forward Guidance last August, the Bank has seen unemployment fall far more sharply than it had forecast to the seven per cent unemployment level.
At that level, the MPC may consider a rise in rates.
Short sterling contracts show markets pricing in a 0.25 percent point hike as soon as December this year. Interest rates are expected at 1.5 per cent by December 2015, and 2.5 per cent before Christmas comes in 2016.
"Obviously I couldn't rule out the need for a rate rise coming earlier than that," Weale told Sky News. A hike in the spring of 2015 would come just before the UK's next general election, scheduled for 7 May 2015.
Weale's comments haven't moved market expectations of a hike.
Jeremy Cook, chief economist at World First, says that Weale's comments line up with current market expectations, "but not being able to rule out an increase before then simply telegraphs his voting intentions and little else."
As for Weale's comments on spare capacity – he sees less in the UK economy than the Bank estimates – Cook says that this debate "will run and run well past the eventual decision to raise rates."