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Interest rates could rise sooner than expected – experts

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Three former members of the Bank of England's rate-setting Monetary Policy Committee (MPC) have suggested interest rates could rise sooner than expected.

Though the base rate has been at a historical low of 0.5% for several years, many experts have forecast there will not be a rise until at least next year, and possibly towards the back end of 2015. 

But former members Sir John Gieve, Andrew Sentance and Dame DeAnn Julius all suggested a rise could be made sooner, according to a report in the Financial Times.

Speaking at a briefing hosted by Fathom Economics, Gieve, a former Bank deputy governor, said there was “a good chance” rates would rise this year.

“These are emergency rates of monetary policy,” he said. “We should be expecting them to normalise over a period.”

Meanwhile, Andrew Sentance suggested rate increases should begin now.

Delaying a rise for too long ran the risk of shocking markets and could leave consumers with the impression rate rises were bad news. “It’s not what you do but the way that you do it,” he said.

Founder MPC member Dame DeAnne Julius said at the briefing it was “time to subtly begin talking about what a normal interest rate might be”, according to the report.

She added that if forecasts of rising inflation were correct, then the first interest rate rise could come as soon as this summer’s August inflation report, with a further rise in November to leave rates at 1% at the end of 2014.

New Bank governor Mark Carney (pictured) said in August a rate rise would be unlikely until unemployment fell below 7%. However, the labour market has improved better than expected.

Carney is due to outline the Bank’s latest thinking on its forward guidance policy on Wednesday.


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