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Ex-MPC member: Bank has left rate rise too late

Ex-MPC member: Bank has left rate rise too late

The Bank of England should already have raised the base rate if they wanted to raise rates gradually, an ex-Monetary Policy Committee member said.

In the latest FTAdviser video interview, Andrew Sentance, senior economic adviser to PricewaterhouseCoopers and a former MPC member, said in his view the Bank has left it a “little too long” to allow it to raise rates gradually.

Speaking to Money Management’s Spriha Srivastava, Mr Sentance said he thinks the bank should have already raised the base rate.

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He said: “If they wanted to raise rates gradually then they should have started by now. I think there has been uncertainty about growth. There has been a feeling that if wage growth does not pick up then inflation is still going to remain under control.

“If the bank leaves it too late to start raising interest rates we are going to get quite a sharp rise and that is really what we should be trying to avoid because that could be quite a big blow to business and consumer confidence.”

In a speech last night, Bank of England governor Mark Carney said that interest rates could rise by the “turn of the year”, emphasising a rise is needed to return inflation to the 2 per cent target. However, Mr Carney emphasised that the degree of a likely “gradual” rate rise depends on three different factors.

Mr Sentance added that as long as we do not get too much uncertainty and turmoil from the situation in Greece, the Bank of England could well raise rates in the second half of this year.

He said: “There are a number of reasons (for rates being raised in the second half of this year) for that. I would expect the US Fed to raise rates and the continued growth of the UK economy is causing the labour market to tighten.

“The Bank of England Monetary Policy Committee are looking at wages quite closely. Wage growth has started to pick up and if that continues then I think they will start to make the first moves in interest rates.”

Mr Sentance also talked about how the new regulatory environment is working out for financial services.

emma.hughes@ft.com