MPC member Dale presses for immediate rate rise

23 May 2011 8:27 am | By Nicole Blackmore

Bank of England chief economist and Monetary Policy Committee member Spencer Dale says an immediate rise in interest rates would benefit the economy over the long-term.

In an interview with the Financial Times, Dale said he would like to see interest rates rise immediately, despite the fragile economic recovery.

He said: “I do not take lightly the impact this could have on some families, but I think the cost to our economy as a whole - were inflation to persist for longer and our credibility start to be eroded - would be even worse.”

Dale acknowledged the financial markets’ prediction when the Bank’s inflation report was published this month that interest rates will rise by 0.25 per cent to 0.75 per cent by the end of the year, followed by rises of 1 per cent a year for the next two years, and gradually rising to 3 per cent by spring 2014.

He said: “That sort of broad path for interest rates didn’t look wholly improbable.”

Minutes from the MPC’s May meeting show six members voted in favour of keeping base rate at 0.5 per cent. They were BoE governor Mervyn King, Charles Bean, Paul Tucker, Paul Fisher, David Miles and Adam Posen.

Andrew Sentance, who has called for base rate to be increased since the middle of last year, continued to call for interest rates to be increased by 0.5 per cent. He is set to leave the MPC at the end of the month and will be replaced by Goldman Sachs managing director Ben Broadbent.

Dale and Martin Weale called for base rate to be increased by 0.25 per cent.

Earlier this month former Treasury adviser Roger Bootle said the bank rate is unlikely to rise until 2013 due to a weak economic recovery.

He said: “The economic recovery does not yet look strong enough to justify tighter monetary policy. We think that the markets are premature in expecting rates to rise next year.”

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