Raise rates in 2014, urges leading City economist Douglas McWilliams

One of the City’s foremost economists will call this week for the Bank of England to lift interest rates as early as next February, assuming that the recovery continues.

Douglas McWilliams, chief executive of the Centre for Economics and Business Research (CEBR), will suggest the Bank lifts its Base Rate from 0.5 per cent to 0.75 per cent next year.

“I don’t think this will signal a return to high rates, but rather that an early movement would actually lower the next likely peak in rates,” he will say. The Bank has talked down the likelihood of such an early rate rise, but last week it had to bring forward the expected date at which it will consider a hike.

Mr McWilliams, who founded the CEBR in 1993, will also suggest the Bank adopt a target of annual nominal GDP growth of 5 per cent. “After the upheaval of the emergence of the fast-growing eastern economies and the uncertainty about the inflationary consequences, a more flexible approach is needed,” he will say tomorrow in his Gresham lecture at the Museum of London.