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Bank Of England May Raise Rates Next Year, Dale Says

The Bank of England may raise interest rates as early as next year if there was stronger than expected growth and weak productivity, policymaker Spencer Dale said in an interview published in the U.K. daily Guardian on Thursday.

Responding to a question whether the bank could raise rates as early as next year, Dale said, "Conceivably it could be 2014. But it would have to be in a world where you had quite strong growth, perhaps stronger than you have got now, and a recovery in productivity weaker than I would expect."

Dale, who is part of the nine-member Monetary Policy Committee, said the economy seems to be growing at an annualised rate of 3 percent to 4 percent. However, he cautioned people from expecting earlier rate hikes given the strong growth.

The BoE's recently adopted "forward guidance" has been useful in explaining how the bank is likely to behave, Dale told the newspaper. He also noted that the forward guidance has helped to reduce the rate hike expectations of people. In August, the central bank said it will leave rates unchanged until unemployment came down to 7 percent.

"We have reduced the likelihood of a premature raising of rates," he said. The bank is uncertain as to how long the 0.5 percent rates would last, he added.

"The big message is that monetary policy is going to remain loose for a considerable period of time," Dale said. "I can't be sure whether that means it will be tightened in 2015 or 2016. It could be 2015. It could be a bit earlier than that or a bit later."

Dale also said that the central bank was aware of the risk that a premature hike in interest rates could choke off recovery. Further, he said the bank is ready to act if markets pushed up long-term interest rates to a level that impinged on recovery.

"The natural thing would be to do more quantitative easing and loosen policy to stimulate the economy," the rate-setter said. Welcoming the housing market recovery, Dale said he saw no immediate threat of a bubble.

by RTT Staff Writer