LONDON: Bank of England top policymaker said the fall in petrol prices has cut UK inflation to 0.5 per cent, interest rates in the UK could rise sooner than markets expect.
Traders have pushed back expectations of interest rates rising from a record low of 0.5 per cent because inflation has come down sharply in recent months.
Kristin Forbes, one of the bank’s nine rate setters said but there were risks that inflation could rebound sooner than thought, pushing rates up earlier than expected.
Forbes further said if the risks that I am focusing on to our last forecasts come through and I think there is a chance that inflation will pick up faster than people had been expecting in the medium term, which then would most likely merit an increase in interest rates sooner than people are currently expecting.
She said inflation, currently at a record low of 0.5 per cent, may overshoot the government set target of 2.0 per cent before the end of 2016.
The Bank has a remit to set interest rates so that inflation can be brought back to target within a reasonable time period.
Forbes’ remarks follow comments from Bank of England governor Mark Carney last week that prices would start to rise in the next two years to bring the inflation rate back to target.
