UK rates will have to rise before upturn begins

According to the former Bank of England (BoE)Deputy Governor, John Gieve, UK interest rates will need to rise before economic recovery can begin, due to the need to protect against a sudden rise in inflation.

In a recent interview he warned that there are a number of very tough decisions ahead in that eventually the bank will have to begin to increase interest rates before the signals reach the consumer that the economy is in the process of recovery.

Gieve, who has just completed a three-year brief overseeing financial stability at the central bank, has said that policymakers must consider the implication of continuing to cut interest rates and potential affect this may have post recession.

Having stepped down before his end of term in 2011 to allow the a fresh start to the BoE’s financial stability under new legislation, Gieve has argued that the BoE has not taken financial stability seriously enough and has focused too heavily on interest rates and keeping inflation rates below 2 percent.

Many critics have similarly argued that stability was a secondary priority to monetary policy, as well as the bank not being in the right position to take action in the midst of the financial crisis.

Interest rates have been cut by 4% since October to currently stand at 1% – the lowest since the Bank was established in 1694.

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