The FTSE 250 closed at a record high and the pound surged by more than a cent in afternoon trading, after a member of the Bank of England's monetary policy committee (MPC) hinted at an impending interest rate rise.
The FTSE 250 rose to 18,559.7 points, one per cent higher, while the pound was sent as high as $1.2481, after Kristin Forbes said surging inflation could significantly strengthen the case for an interest rate rise during a speech in Leeds today.
Forbes said she is “beginning to grow uncomfortable with the trade-off embodied in our current forecast”, less than a week after voting to keep interest rates at historically low levels.
“If the real economy remains solid and the pickup in the nominal data continues, this could soon suggest an increase in bank rate,” she said.
The Bank is mandated to keep inflation below two per cent, while balancing the impact of higher interest rates on the UK’s unemployment rate.
In the aftermath of June’s Brexit referendum the MPC cut its main bank rate to 0.25 per cent in anticipation of a hit to the economy a consequent rise in unemployment. However, since then the UK economy has performed remarkably well, with no slowdown in quarterly GDP growth.
If the UK economy continues to show signs of resilience accompanied by rising prices it will be “increasingly difficult for me to justify tolerating such a large and likely overshoot of inflation,” said Forbes.
Forbes, a former White House economic adviser who still teaches at the Massachusetts Institute of Technology, is considered to be one of the more hawkish members of the MPC.