A rate increase took between one and two years to take full effect, the Monetary Policy Committee member said.
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“Waiting too long would risk undermining the recovery – especially if interest rates then need to be increased faster than the gradual path which we expect”, she said.
Earlier in the month, the Bank’s quarterly Inflation Report and MPC meeting minutes pointed at a rate rise next year, rather than in Q4 this year, as some market participants have been expecting.
“Maintaining interest rates at the current low levels during an expansion risks creating distortions”, she wrote.
However, a rise appears to be on the cards, with Governor Mark Carney indicating last month that the first increase could happen around the turn of the year.
‘With both sunshine and inflation, there is a peril to living only in the moment, ‘ she said.
But sterling fell back later in the day, to as low as €1.4058, as investors grappled with the outlook for interest rates at a time of strong economic growth and ultra-low inflation.
A policy maker at the Bank of England has warned that waiting too long to hike interest rates could damage the economy in the near term.
Ms Forbes said the most recent slumps in oil prices and commodity stocks, plus the strength of the pound and China’s devaluation of its currency last week all meant there was “a bit more time before inflationary pressures build in the UK”. If New Zealand’s data doesn’t start impressing soon, the odds of the Reserve Bank of New Zealand (RBNZ) cutting borrowing costs again will climb and the New Zealand Dollar could fall to fresh lows. Traders turned cautious before consumer price inflation numbers on Tuesday, which are likely to show price pressures remain subdued in the UK.
Kristin Forbes, who is professor of management and global economics at the MIT Sloan School of Management has been a member of the MPC since July 2014.
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Forbes compared the Bank’s job of taming inflation, through higher interest rates, to preventing sunburn. It is important to point towards the fact that the Bank of England had slashed interest rates to 0.5 percent during the financial crisis in 2009 to provide the much needed impetus.
