British Interest Rates May Rise Sooner than Expected

October 19, 2015

Kirstin ForbesAccording to a statement made by Kirstin Forbes, a policymaker with the Bank of England, interest rates may return to more normal levels sooner than many economists have predicted. She went on to suggest that the perception of risk exposure in the British economy to negative conditions in developing countries may be overstated. Several economists, however, have advised against the normalization of interest rates on the basis of uncertainty surrounding the Chinese economy.

Those who oppose an interest rate increase by the Bank of England have pointed to recent data that suggests a decline in growth in the manufacturing and construction industries in Britain. However, even though a slowdown does seem to be occurring in those sectors, growth numbers are still positive. This is the rationale that has been put forward in favor of raising interest rates, possibly as soon as early 2016. There is still a great deal of uncertainty about whether or not this will occur, as only one of the nine Bank of England monetary policymakers has voted to raise interest rates in the past several months. Of prime concern to those in charge of determining when to raise the rates is the impact that such an increase might have on trading partners across Europe.

The statement by Forbes also comes shortly after a G30 report that indicated that the long term consequences of artificially low interest rates may outweigh their short term benefits. The report suggested that many developed economies were in danger of high inflation and permanently low interest rates if central banks did not begin to raise rates soon.