Holding base rates could damage recovery

Mortgage Introducer

August 17, 2015

Consumer Price Inflation is currently hovering at around zero, below the Bank’s target of 2%.

In The Telegraph Forbes wrote that it will take up to two years for a base rate rise to filter through to the economy.

She said: “Interest rates will need to be increased well before inflation hits our 2% target. Waiting too long would risk undermining the recovery – especially if interest rates then need to be increased faster than the gradual path which we expect.

“But with inflation starting from about zero today, there is no need to act before we are confident that inflation is heading back toward 2% within about two years as expected.

“Sterling’s continued appreciation, plus the most recent falls in energy and commodity prices, will keep inflation low for longer. The changes China made last week in its exchange rate regime may also reduce some international prices over the next few months.”

She added: “An increase in interest rates is generally believed to take somewhere from one to two years to have its maximum impact.

“Maintaining interest rates at the current low levels during an expansion risks creating distortions.”

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