Bank of England official predicts interest rise sooner than forecast
Interest rates could rise more quickly than forecast in November's Inflation Report, a Bank of England official has said.
But Minouche Shafik, deputy governor for markets and banking and a member of the Monetary Policy Committee which sets rates, added that she will wait for wage growth to increase before voting for an increase.
In a speech at the Institute of Directors in London, the former World Bank vice-president said: "I will wait until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target before voting for an increase in Bank Rate.
"In this sense, I will proceed with caution. But once I am convinced, absent further shocks, I can see Bank Rate rising more quickly than the path implied by the market curve at the time of the last Inflation Report.
"Whatever the outcome, it will be important to maintain flexibility to respond to new data and events."
Dr Shafik pointed to data showing that the frequency with which drivers have not replaced their tyres has not yet returned to pre-financial crisis levels to illustrate the shortcomings of the recovery so far.
But she would not be drawn on the level of wage growth, which she believes would spark an interest rate change, saying "it's not a mechanical number" and would involve other considerations.
Dr Shafik also said that the current rate of 0.5% was not the absolute lower limit, adding "it could go lower if we have to".
Explaining her view about interest rates, she said: "I think it is interesting to note that surveys of economic forecasters - a more direct measure of the expected future path of interest rates - show expectations for a faster pace of increases in Bank Rate."
Last week, the Bank of England ended another year leaving interest rates at record lows as the cost of borrowing was held once more at 0.5%.
Members of the Bank's nine-strong MPC, which includes Dr Shafik, voted eight to one to keep rates unchanged in its final decision of 2015, as they have done now for more than six years.
Dr Shafik revealed her children's nonplussed response at the dinner table: "All that work, and you do nothing?"
The decision comes as the US Federal Reserve is poised to make its first interest rate increase in nearly a decade, while monetary policy in Europe is moving in the opposite direction.
Asked for her response to the Government's decision to implement a national living wage, Dr Shafik said: "Our estimates are that it will have a modest effect on total wage growth."
Dr Shafik, who picked up a damehood in the last honours list, joined the Bank of England as a deputy governor in August 2014.
Prior to joining the Bank, she was deputy managing director of the International Monetary Fund from 2011-2014.
Before a stint as Permanent Secretary at the Department for International Development from March 2008 to March 2011, Dr Shafik was, at 36, the youngest ever vice-president of the World Bank.
