Bank of England deputy says Fed rate rise would be “good sign”

That contrasts with action from other central banks.

In a speech at the Institute of Directors, the former World Bank vice-president said: “I will wait until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target before voting for an increase in Bank Rate”.

Last week, the Bank of England ended another year leaving interest rates at record lows as the cost of borrowing was held once more at 0.5 per cent.

When the MPC comes to meet again in January it will likely have to take into account continued falling oil prices, with Brent Crude at 37.35 U.S. dollars a barrel on Tuesday against the price in July 2014 of above 110 U.S. dollars a barrel, and a rate-rise from the U.S. Federal Reserve.

Some economists believe the expected decision by the Federal Reserve to raise United States interest rates on Wednesday could change the outlook for the Bank.

LONDON-A top Bank of England official said Monday that interest rates in the United Kingdom may need to rise more quickly than expected provided a recent pause in wage growth proves temporary.

Since the RBI continues to target a lower rate of inflation and ultimately wants inflation to move down to 4% pa. with a band of plus minus 2%, and commodity prices globally continue to very weak, one should expect inflation to continue to remain lower than what is has historically been.

Shafik said all the MPC’s members believed that future rate hikes would gradual and limited, and that they believed a future Bank Rate of 2 percent would allow room for a material reduction in a loosening cycle of monetary policy, if needed. Bank of England policymakers have repeatedly sought to play down market expectations that they will take cues from the Fed in setting United Kingdom policy.

“Absent further shocks, I can see bank rate rising more quickly than the path implied by the market curve at the time of the last Inflation Report”, she added.

The BCC believes rates will rise in the third quarter of 2016, although it stresses that global economic woes could push it back further, while Investec Economists are pencilling in a rise in the second quarter of next year. Just one member, Ian McCafferty, voted for a rate rise to 0.75% given concerns while inflation is negative now it could soon rise and overshoot the Bank’s target.

Overall she was upbeat that the United Kingdom was putting the financial crisis behind it.

There are many signs that the economy is normalizing – the labour market is tightening, consumption growth is solid, investment is recovering, and even productivity growth is showing tentative signs of a return.