Key Bank policymaker urges higher rates

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A key member of the Bank of England’s interest rate-setting Monetary Policy Committee (MPC), Michael Saunders, has said “a modest rise” in interest rates is needed to curb high inflation.

In a speech in Cardiff, he said it would “help ensure a sustainable return of inflation to target over time”.

“We do not need to be putting the brakes on so much that the economy weakens sharply,” he said.

“But our foot no longer needs to be quite so firmly on the accelerator.”

Mr Saunders, formerly the head of European economics at the US-based bank Citigroup, has been one of the nine MPC members since August last year.

Like his predecessor Martin Weale, he has often favoured higher interest rates.

“In the exceptional circumstances since the EU referendum, the MPC has sought the appropriate trade-off between above-target inflation and below-potential output,” he said.

“The terms of that trade-off have shifted markedly in recent quarters. Inflation has risen well above target, while spare capacity in the economy has been absorbed faster than expected.

“The jobless rate is now slightly below our estimate of equilibrium. The prospective trade-off is beyond my limits of tolerance, with the likelihood of an early elimination of slack and an extended period of above-target inflation.”

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