The pound hit a 15-month high against the dollar after a senior Bank of England official fuelled speculation it could raise rates in the coming months.
Gertjan Vlieghe, who is on the Bank’s Monetary Policy Committee (MPC), said the “moment is approaching” when interest rates might need to go up. It comes after the Bank voted on Thursday to keep rates at 0.25%, but talked in stronger terms about a rise.
Mr Vlieghe has previously argued against increasing interest rates. Sterling rose more than 1% against the dollar to hit $1.3610, its highest level since 24 June, the day after the Brexit vote.
The pound also gained more than 1% against the euro to rise above 1.13 euros.
Analysts have suggested the Bank could lift interest rates back to 0.5%, the level they were before the EU referendum, as soon as November.
In a speech on Friday, Mr Vlieghe said: “Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure.
“But the evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to rise.” Mr Vlieghe, who was the first Bank member to vote for a rate cut after the Brexit vote, said there was now growing evidence the UK economy was picking up.
‘Concerted effort’
He pointed to unemployment falling to record lows, as well as signs that households are spending more and that wages are rising in the private sector.
“If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in Bank Rate might be as early as in the coming months,” Mr Vlieghe said.
The Bank said on Thursday that higher inflation and a pick up in growth could lead to a rate rise soon.
That helped the pound gain against other currencies – a move which continued on Friday – because higher interest rates would make sterling more attractive to investors.
Howard Archer, chief economic adviser to the EY Item Club, said: “Vlieghe’s comments will support belief that the Bank of England could well raise interest rates before the end of 2017 with a move as soon as November very much in play.
“Admittedly, the Bank of England has previously talked up the likelihood of an interest rate hike then failed to follow through, but there does seem to be a more concerted effort this time around and more unanimity within the MPC of the case for a hike.”
