Bank of England policymaker calls for 'modest' interest rate rise

A key Bank of England policymaker has said a "modest" interest rate hike is needed to curb surging inflation and warned over the dangers of getting "behind the curve".

Michael Saunders - one of the Bank's Monetary Policy Committee (MPC) members who has recently voted to raise rates - said an increase would "help ensure a sustainable return of inflation to target over time".

In a speech in Cardiff, he said the trade-off of putting up with soaring inflation to boost the economy in the face of Brexit uncertainty was now "beyond my limits of tolerance".

He added: "We do not need to be putting the brakes on so much that the economy weakens sharply.

"But, our foot no longer needs to be quite so firmly on the accelerator in my view."

While Brexit could be a "bumpy" ride, the Bank should respond "as needed" rather than by keeping rates at the current all-time low of 0.25% in case risks to the economy emerge, he said.

He warned if early action is not taken, rate rises might end up being more dramatic to prevent the economy from overheating.

This could prove a shock to homeowners - many of whom have never had to face a rate rise.

He said: "In that case, the eventual tightening might be rather less limited and gradual than desired, leading to a more abrupt and painful economic slowdown."

He added: "It would be preferable to have the space to move gradually, observing the effects as we go. If we get behind the curve, we lose that space."

Mr Saunders has been among a minority on the MPC voting to raise rates to 0.5% in recent months amid inflation fears.

The MPC voted 6-2 to hold rates in August as lacklustre economic growth saw the majority opt against a hike.

But Governor Mark Carney signalled that borrowing costs may need to rise quicker than markets expect to cool inflation.

Read Full Story