Inflation needs to be checked with rate increase, says MPC member

Kristin Forbes, who is leaving the monetary policy committee, says the UK economy is ‘overstimulated’. Photograph: Bloomberg/Getty

A Bank of England policymaker has heaped further pressure on Mark Carney, the governor, with a warning that the central bank’s policymakers have failed to spot an inflationary spiral that needs to be choked off with an immediate increase in interest rates.

In the same week that Andy Haldane, the chief economist, said he was considering voting for an increase in rates before the end of the year, Kristin Forbes, an outgoing member of the monetary policy committee, used her valedictory speech to say the governor and a majority of the other MPC rate-setters were wrong to believe inflation would peak soon and then retreat, allowing rates to stay low.

Speaking at the London Business School, the US academic said: “This is not an economy that is too weak to support an increase in interest rates. Instead, it appears to be an economy that is ‘overstimulated’ and where monetary policy has been set too loosely,” she said.

Forbes, one of four external members of the MPC, has voted at the past three committee meetings for an increase in the base rate from 0.25%. She said internal Bank research showed inflation would persist while the economy was “clearly outperforming” by every measure except wages growth.

At the most recent meeting, she was joined by fellow external members Michael Saunders and Ian McCafferty in voting for rates to be increased.