Sterling weakness strengthens case for UK rate rise: BOE's Forbes

Bank of England policymaker Kristin Forbes said on Thursday she feared the pound's weakness would have a lasting upward effect on inflation, and that she was concerned central banks were becoming more reluctant to raise rates than in the past.

Forbes - whose three-year term on the BoE's Monetary Policy Committee ends next week - has voted since March to raise British interest rates from their record-low 0.25 percent.

n her final speech as an MPC member, she expanded on research she published last week which argued that sterling weakness had a longer-term effect on inflation than the BoE typically assumed.

"'Lift-off' of UK interest rates should not be delayed any longer," she said in a speech at the London Business School.

"Sterling's depreciation has fundamentally shifted underlying inflation dynamics in a way that makes it more pressing to begin this voyage soon."

Forbes's remarks come after a turbulent seven days which have seen a big split emerge on the MPC at a time when inflation is picking up but growth prospects are unclear as the country prepares to leave the European Union.

Two other policymakers unexpectedly joined Forbes last week in voting for higher rates, and the BoE's chief economist has said he is likely to do so later this year once the "dust cloud" around Britain's political outlook has cleared.

One major bank, Nomura, said earlier on Thursday that it expected the BoE to raise rates at its next meeting in August - far earlier than the 2019 date given by most economists in a Reuters poll at the start of the month.

But BoE Governor Mark Carney has poured cold water on the chances of a rate hike, highlighting "anemic" wage growth which is likely to drag down on inflation once the effect of currency weakness fades.

Source: Bloomberg Pro Terminal

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