BoE's Miles says UK interest rate hike should come "soon"
By Andy Bruce
LONDON, July 14 (Reuters)- - The Bank of England should raise interest rates their from record low levels soon and it does not have to wait for the U.S. Federal Reserve to move first, policymaker David Miles said on Tuesday.
Confounding his reputation as a "dove" on the Monetary Policy Committee, Miles said the case for raising interest rates was stronger than at any time since he joined as an external MPC member in 2009.
The remarks, made in his final speech before stepping down next month, raise the possibility that August's meeting could see a renewed split among rate setters. Fellow MPC member Martin Weale has also suggested he will vote to raise rates soon.
Miles said waiting too long to start a "gentle amble" to higher interest rates would be a bad mistake, while emphasising that sharp rises in borrowing costs should be avoided.
"Given that, and given that many of the after-effects of the mess of 2008 do seem to have faded, I think a first move up in Bank Rate soon is likely to be right," said Miles at a speech to the Resolution Foundation think tank in London.
"I do not attach great weight to the idea that starting this process will create great risks of dropping back into very weak growth, falling into negative inflation and engendering a splurge in risk-avoiding behaviour."
Earlier on Tuesday, Miles and BoE Governor Mark Carney told lawmakers that the time for a first interest rate hike since the financial crisis was getting closer as Britain's economic recovery gathers momentum.
Those comments caused sterling to rise against the dollar and the euro.
Many economists think the BoE will not raise interest rates before the U.S. Fed does -- something Miles said was a mistake.
"One thing the MPC will not do (and never has) is just follow another big central bank; it is a daft idea that we cannot raise rates in the UK before the U.S. and also cannot be long behind them," said Miles.
His remarks are likely to surprise many observers of the BoE.
Miles, formerly chief UK economist at Morgan Stanley, repeatedly voted to increase the BoE's asset purchase stimulus in 2013, against the consensus on the MPC .
In March, he said the BoE was more likely to raise rates than cut them, although the timing would depend on economic data.
In Tuesday's speech, Miles highlighted Britain's low unemployment rate, strong economic growth, upbeat consumer and business confidence and rising wages.
If pushed, Miles said he could see the appropriate interest rate for keeping inflation on track and demand in line with capacity at around 3 percent in two years' time, somewhat higher than the BoE's baseline assumption of 1.5 percent in its May economic forecasts.
He also said that he suspected that British banks have not yet reached the right level of equity funding to adequately moderate their risk-taking behaviour.
(Editing by William Schomberg/Ruth Pitchford)
