BoE 'dove' calls for early base rate hikes

One of the most dovish members of the Bank of England's Monetary Policy Committee (MPC) has said it will have to start raising interest rates in the coming months.

David Miles described the recovery as "resilient" and "sustainable" and said it was increasingly likely he would vote to hike rates before leaving the MPC next May.

Miles is the latest voice from the Bank of England to warn of higher rates to come, following fellow MPC member Ian McCafferty and the Bank's new chief economist Andy Haldane.

Earlier this month, governor Mark Carney said rates were set to rise "sooner than expected".

Writing in the Sunday Telegraph, Miles said rate increases due to economic growth were good news for the economy.

“Having bank rate at 0.5% is obviously not a normal or sustainable setting for monetary policy.

“We have had such low rates because the economy took a huge hit in the aftermath of the financial crisis of 2008.

"Until fairly recently we have not had any sort of sustained recovery from that. Now we have one.”
Miles said subdued inflation would enable policymakers to raise rates gradually. There would be no repeat of the “eye-wateringly sharp” increases of the late 1970s or 1980s, when the Treasury implemented a series of rapid rate hikes in order to keep a lid on price rises.

"This is more a case of scaling back the emergency medicine as the patient begins their recovery, rather than invasive surgery to deal with a sudden, life-threatening illness,” he said.

Miles said slow wage growth suggested enough “slack” remained in the economy for the Bank to keep rates on hold in the immediate future, reinforcing the market view that rates will start to rise around the time of November’s Inflation Report.

He also said it was “wildly unlikely” that interest rates would return to pre-crisis levels of around 5%.

He said record low rates had increased the gap between the official interest rate and mortgage costs for consumers, suggesting that the Bank would not have to raise rates back up to pre-crisis levels to keep inflation close to target.

Mr Miles joined the MPC during the depths of the financial crisis in 2009, and has never voted to raise interest rates.