Interest rates may need to increase faster than markets are pricing, according to the Bank of England’s (BoE) monetary policy committee (MPC) member Michael Saunders.

Saunders yesterday said that against a background of stronger inflationary pressures “rates might need to rise a little faster”.

Saunders was one of the three members of the rate-setting MPC who voted for interest rates to increase to 0.75 per cent in June, when chief economist Andy Haldane shocked City observers with a vote to keep rates steady.

The split vote highlighted the difficult trade-off for the MPC, with what it sees as signs of rising inflation on the domestic front while also presented with relatively weak economic data.

While speaking to CNBC, Saunders said that he wants an “earlier return to a neutral rate” for monetary policy, at which it does not encourage further inflation.

A rebound in UK growth after a weak GDP reading of 0.2 per cent in the first quarter (despite being upwardly revised from 0.1 per cent) and a “tightening in the labour market feeding through to pay growth” are pivotal to the rates outlook, Saunders said.

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