Britain’s economy slowed in the first quarter of this year after an unexpectedly robust performance in 2016, though the BoE expects reasonable growth overall this year and next.
“The UK economy appears to be solid enough on key economic criteria, and even ‘overstimulated’ by others, such that a moderate reduction in the substantial amount of monetary stimulus … makes sense,” Forbes said.
Weak wage growth – a factor cited by both Carney and policymaker Andrew Haldane – was not a good enough reason to hold off from raising rates, given Britain’s low productivity and other price pressures.
“A key lesson from monetary history is that a tightening cycle should start before wages accelerate to reach their level consistent with sustainable 2 percent inflation,” Forbes added.
Forbes said that a potential weakening in consumer spending, and the effect of a rate rise on sterling, were concerns for those of her colleagues who did not want to raise rates yet.
But she said the fact that the U.S. Federal Reserve is raising rates should reduce the impact on sterling of a BoE rate rise, as should markets’ current focus on Brexit talks rather than the monetary policy outlook.
The United States’ experience also suggested that household saving rates could fall further to support consumer spending if needed, she added.
