BOE's Sentance Says `Gradual' Rate Increase in U.K. Would Assist Recovery

Bank of England policy maker Andrew Sentance said a gradual interest rate increase from a record low to fight inflation will help support the economic recovery.

“We certainly don’t want to snuff out the recovery, but we want to keep a check on inflation,” Sentance said in an interview with BBC Radio 4’s “Money Box” program. “If we can raise interest rates in a gradual way, that will be helpful for the recovery because it will mean there won’t be a big shock to the business community.”

Sentance, 51, in June became the first member of the Bank of England’s Monetary Policy Committee to push for a rate increase, which would be the first in almost two years. The other seven policy makers opted to keep the benchmark rate at 0.5 percent as they weighed the risk of inflation against the danger that the deepest public spending cuts since World War II will kill the economic recovery.

The central bank also kept the rate unchanged this month, with the minutes of that meeting scheduled for release on July 21.

A rise in inflation has been “quite a surprise,” Sentance told the BBC.

Consumer prices have risen by more than the government’s 3 percent limit in every month since February and the statistics office yesterday said they increased 3.2 percent in June, more than economists surveyed by Bloomberg had forecast.

“We had previously expected the recession to push down inflation,” he said. “Inflation has been running above the target. The economy is still at an early stage of the recovery, but we did take interest rates down to an exceptionally low level last year. The question is to find the right level to support the recovery.”

Business surveys, especially those run by the Confederation of British Industry, are among reports that Sentance said he is “particularly keen on” when considering the economy before making an interest-rate decision.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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