Bank of England policymaker Kristin Forbes on verge of voting for rate rise

‘In my view, if the real economy remains solid and the pick-up in the nominal data continues, this could soon suggest an increase in the bank rate,’ she said

Kristin Forbes, an external member of the Bank of England’s Monetary Policy Committee, said she believed the UK would ride out the referendum better than most economists expected (Getty)

Kristin Forbes, an external member of the Bank of England's Monetary Policy Committee, has given a strong signal that she is on the verge of voting to increase interest rates for the British economy.

In a speech in Leeds, Ms Forbes said that the robust performance of the economy in the wake of last June's Brexit vote had confirmed her hunch that the UK would ride out the referendum better than most economists expected.

She also pointed to the growing risk of a major inflation overshoot.

“In my view, if the real economy remains solid and the pick-up in the nominal data continues, this could soon suggest an increase in the bank rate,” she said.

The MPC voted to keep rates on hold at 0.25 per cent last week, having unanimously voted to slash them last August in the wake of the Brexit vote.

But the minutes of the meeting relayed that “some members” of the nine-person committee were reaching the limits of their tolerance for inflation overshoots of the Bank's 2 per cent target.

The speech from Ms Forbes, who joined the MPC in 2014, confirms she is one of them.

Last week the Bank of England sharply upgraded its 2017 growth forecast to 2 per cent, but it left its inflation forecast little changed after upgrading its estimate of the amount of slack in the labour market.

Ms Forbes said she was sceptical that there was as much slack as the Bank's forecast implied.

She also noted the strengthening of global growth forecasts since last summer.

“I am beginning to grow uncomfortable with the trade-off embodied in our current forecast, especially when accounting for my assessment of the different risks to this forecast and several recent developments in the UK and global economy,” she said.

Although she voted to cut rates last August, Ms Forbes at that time voted against the plan to restart the Bank's money-printing programme and also against diversifying it into the purchase of corporate bonds, in an indication of her more hawkish leanings relative to her colleagues.

The MPC itself has indicated that rates could move “in either direction” in the coming months, depending on how the economic data develops.

The consensus forecast of the MPC remains for the economy to slow down as higher inflation erodes consumer spending and businesses delay investment because of Brexit-related uncertainty.