Aug 4, 2010
Interest rates will have to rise earlier and more sharply than expected to keep inflation under control, two former Bank of England policy-makers have warned.
Sir John Gieve, an ex-deputy Governor, and Charles Goodhart, a previous member of the Monetary Policy Committee, are the most senior economists yet to have opposed the current orthodoxy that rates will stay low for a prolonged period.
The warning will come as a relief to savers but as a shock to home owners, many of whom are able to meet their mortgage repayments only because of record low rates of 0.5pc.
Addressing Fathom Financial Consulting’s Monetary Policy Forum, Sir John said: “I am expecting a recovery – when that is strongly established I’d expect rates to start rising faster than the market currently expects. I wouldn’t be at all surprised to see interest rates at 2.5pc a year from now.”