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Forbes: Low interest rates no longer justified


A departing rate-setter at the Bank of England has warned that record-low interest rates are no longer justified.

Kristin Forbes made her final speech as an external member of the Monetary Policy Committee on Thursday evening and questioned the need for “emergency” level interest rates.
Speaking at the London Business School, she said: “The ‘lift-off’ of UK interest rates should not be delayed any longer.”
She said that recession and higher unemployment had not happened as expected after the Brexit vote.
“Many of the factors that have justified keeping interest rates at emergency levels over the past few years have become less potent, and sterling’s depreciation has fundamentally shifted, underlying inflation dynamics in a way that makes it more pressing to begin this voyage soon,”
Her words come just days after she was one of the three members of the MPC to vote for an increase in rates from their record low of 0.25%, in opposition to Bank of England Governor Mark Carney who has said that now is “not yet the time” for rates to go up.
Mr Carney had said wages were flat and the effect that Brexit will have on the economy was unclear.

The Bank’s chief economist Andy Haldane, however, said earlier this week that he could support a rise in interest rates later this year.
Ms Forbes made the case for “limited and gradual” adjustment.
The American economist added: “We should be less hesitant to adjust interest rates – in either direction – as the situation changes,” she said.
“Engineers are quick to adjust a launch date if there is a technical concern or if the weather shifts. We should do the same.
“Otherwise, the UK economy may face greater challenges than parents face when their 30-something fails to launch from their home.”
She said: “Each member has valid arguments supporting their votes each month but, when taken together, the outcome is quite a change from the series of rate hikes that I had expected to occur over the last three years.”

Source: SKY