The CBI has sharply upgraded its growth forecasts and given warning that the Bank of England may begin raising interest rates by the end of the year, much sooner than widely expected.
Ian McCafferty, the business lobby group’s chief economic adviser, said the Bank’s Monetary Policy Committee will continue its programme of quantitative easing for some months before 'nudging up' interest rates from its historic low of 0.5%.
'We will need to see some move back to normality in monetary policy as and when the economy recovers,' he said. The comments are likely to fan further expectations around the world that Anglo-Saxon central banks may start to withdraw emergency stimulus faster than expected just weeks ago.
Any signs that either the Bank of England or the US Federal Reserve could be mulling rate rises as soon as this autumn risks triggering an abrupt flight from the bonds markets, pushing interest yields significantly higher. There is a danger that this market reaction could itself kill off any recovery before it gets off the ground.