Monetary Policy Committee member warns over sharp rate rise

By Daily Mail Reporter
Updated: 11:00 EST, 21 February 2011

It would take a sharp hike in interest rates to bring inflation down and such a move could destabilise the economy, a member of the Monetary Policy Committee has said.

Dr Martin Weale said the MPC, which sets interest rates, would need to act, but warned against a rapid rate rise now.

He said that if left unchecked, inflation could increase rapidly as people would come to expect higher wages and businesses would want to put up their prices.

He told BBC Radio 4's The World at One: 'I certainly wouldn't expect raising interest rates in the short term to bring inflation rapidly back to target.

'One would need very sharp interest rate increases to do that and that's certainly not something I can favour. It would, I think, be destabilising for the economy as a whole.'

He added: 'My own view is that we also now have to think about the medium term risks in order to bring inflation to target in the medium term. One of those very significant risks is that the current elevated inflation that we are having will start to affect people's expectations.'

Dr Weale said there would be some costs to putting up interest rates by a small amount now but it would prevent a much steeper hike in the future.

But it was necessary to curtail people's 'inflation expectations back towards the two per cent target'.