POLITICS

Bank of England May Raise Interest Rates 'More Quickly', Says Deputy

25/09/2014 11:19 BST | Updated 25/09/2014 11:59 BST
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Nemat Shafik, deputy governor for markets and banking at the Bank of England, listens during the bank's quarterly inflation report news conference in London, U.K., on Wednesday, Aug. 13, 2014. Bank of England Governor Mark Carney pledged that Bank of England officials won't rush to raise interest rates as he highlighted overseas risks to Britain's recovery and the weakness of wages. Photographer: Simon Dawson/Bloomberg via Getty Images

The Bank of England may "have to move more quickly" to raise interest rates if the economic recovery does not see productivity increase along with wages, its newest deputy governor has warned.

Nemat "Minouche" Shafik, who oversees markets and banking, said that Bank rate-setters would be forced to head off the threat of higher prices if rising wages fail to be matched by stronger productivity.

"If wage increases are expected but productivity is performing well we can wait for longer," she told the Yorkshire Post. "If those wage increases are not accompanied by productivity increases then I think we will have to move more quickly on rates because inflationary pressures will build up."

"I think it's the key choice we face," said Shafik, who has so far attended two meetings of the Bank's Monetary Policy Committee, which oversees the path of interest rates.

The timing of the first increase, which would raise rates from the emergency low which has been in place since 2009, has caused controversy as it would push up the cost of borrowing and pile pressure on mortgage holders and businesses. Bank officials have repeatedly stressed that any rise would be "gradual" and "limited".

Bank Governor Mark Carney has indicated that rates should rise next spring as wages finally start to rise faster than inflation, stressing that rate-setters would "need to see the prospects of wage growth coming in".

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The Bank, he said, was "closely monitoring pay settlements" as a "leading indicator" of whether the economy was able to withstand an interest rate hike.

The governor said the Bank expected workers to enjoy wages rising faster thain inflation "around the middle of next year", explaining: "Productivity growth should pick up bringing the higher, sustainable pay rises that British workers deserve."

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