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Policymaker warns of low interest rates

17 Aug 2015

Monetary Policy Committee (MPC) member Kristen Forbes has warned that waiting too long to raise UK interest rates could pose a risk to the economy.

Commenting in the Telegraph, Prof. Forbes said: ‘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’.

She clarified: ‘There is no need to act before we are confident that inflation is heading back toward 2% within about two years as expected’.

Fellow MPC member David Miles has also recently commented on the arguments for beginning the process of an interest rate increase. However, earlier in August the MPC voted 8 to 1 to keep rates at their current level of 0.5%.

Prof. Forbes continued: ‘Maintaining interest rates at the current low levels during an expansion risks creating distortions. Therefore, interest rates will need to be increased well before inflation hits our 2% target’.

Current predictions for inflation indicate it will remain around zero for the next few months, with a rise to 1% in early 2016.