Sound bites: the BOE needs to raise UK interest rates now

The Bank of England needs to raise rates now. The UK economy is booming and the housing market is getting into a speculative frenzy. And it is the BOE’s fault. The Bank has left UK monetary policy in an over-stimulated state for too long and it is starting to damage longer term prospects for sustainable recovery. Thankfully there is still a slight surfeit of economic slack left in the UK so there is no immediate threat to faster inflation. But the Bank needs to move interest rates away from near-zero levels as fast as possible. The BOE would not be blamed for raising rates as soon as the May monetary policy meeting. As a first target, the Bank should be heading rates up to 3% over the next 18 months. UK base rates should be back towards neutrality around 5% in the next three years. The UK is the fastest growing economy in the G7 and it is now appropriate to be in the vanguard of the G7 rate tightening cycle.

                                Q1 2014   Q4 2013   Q1 FORECAST
    Pct change q/q         0.8         0.7            0.9
    Pct change y/y          3.1         2.7            3.2