Ex-BoE officials warn rates will rise quicker than expected - papers

04 August 2010

Interest rates will have to rise earlier and more sharply than expected to keep inflation under control, warn two former Bank of England policymakers. Sir John Gieve, an ex-deputy Governor, and Charles Goodhart, a previous member of the Monetary Policy Committee, are the most senior economists yet to have opposed the current orthodoxy that rates will stay low for a prolonged period. The warning, the Telegraph reports, will come as a relief to savers but as a shock to homeowners, many of whom are able to meet their mortgage repayments only because of record low rates of 0.5%. Addressing Fathom Financial Consulting's Monetary Policy Forum, Sir John said: "I am expecting a recovery - when that is strongly established I'd expect rates to start rising faster than the market currently expects. I wouldn't be at all surprised to see interest rates at 2.5% a year from now." Markets expect rates to be between 1% and 1.5% this time next year, according to Consensus Forecasts. The respected Ernst & Young ITEM Club has predicted they will not rise until January 2014. Sir John added: "I think the Bank will have learned a lesson from the Greenspan years after the dotcom boom when the US was very slow to raise rates back to normal levels. When the Bank thinks recovery is established they will want to normalise quite quickly." Published by IFAOnline